Part 01:
Top Advice For Building a Hydroponic Farm in 2023
It’s no secret that Controlled Environment Agriculture has seen much better days. In recent weeks, AeroFarms, yet another high-profile VC-backed vertical farm, declared bankruptcy.
Is the industry in some irreversible spiral? Not at all. New farms are still opening, and thousands of existing ones are still thriving. So what’s the difference between those who make it and those who don’t?
We don’t want to sugarcoat things. This year, we’ve shared plenty of commentary on the challenges the industry is facing, especially stemming from the shortcomings of vertical farming. But we’ve also shared stories from growers who give us plenty of reasons to be optimistic about the future.
Still, it’s a moment that requires thoughtfulness. We’re always thinking deeply about the challenges our industry faces, and in this new three-part series, we’re going to take a look at the state of the industry and share our thoughts on the following:
- Top advice for prospective growers in 2023 (That’s what we’ll share this week!)
- Top advice for investors in 2023
- Top reasons why AmHydro and our growers are positioned for success
Our insights are forged by our daily experiences, our decades of expertise, and valuable conversations with pros who are familiar with both success and failure. Our hope is that this valuable information sets you up for success.
Let’s get one thing out of the way first.
At AmHydro, we’re all about doing fundamentals right. While we are always looking to innovate and refine our core processes, we’re more interested in multi-decade trends than we are in quarter-by-quarter trends.
Why is that? Well, it’s partially the perspective that comes from four decades of experience serving farmers. It’s also a perspective that’s come from seeing our most successful clients committing to sustainable, long-term development, no matter the economic climate – whether it’s a bull market or bear.
Despite our long-term view, we’re aware of the moment we’re in. We’re aware of the questions, concerns, and justified fears shared by many prospective growers. Here’s five pieces of advice that we think are especially timely right now.
1. Some are succeeding and some are failing. Pay attention to the differences.
Building a new CEA operation in this economic environment is full of challenges, but it’s not a recipe for failure. We’ve supplied equipment for dozens of new farms in the last few years, the vast majority of which are still going strong. So why do some succeed at the same time as we see other very high-profile failures?
Everyone is operating under the same economic constraints, but not everyone is prioritizing the same values or following the same business plan. The following points are traits we’ve noticed and encouraged in our most successful clients.
2. Plan to Meet Market Demand from Day One
Consumer and market desires do not follow an “If you build it, they will come” model. There’s no point in growing the greatest produce in the world if no one will buy it. Many failed companies have started by developing eye-catching technology for growing at scale, but ultimately failed to move their product profitably. Before you grow a single plant, you need to have a strong idea of who in your area is actually buying.
3. Pay Attention to Unit Economics
Along with that market research and general idea of demand, you also need to get detailed. Pennies matter when you’re dealing with commercial scale. This idea of unit economics involves an understanding of the price at which you can actually sell your plants, but it also involves the costs involved in growing your plants as well.
How much electricity cost does it take to grow each plant? What other operating expenses are involved in growing each head of lettuce? How many plants will you have to sell in order to sustainably pay off your capital expenses?
4. Keep it Simple
There’s a lot of technology out there hailing itself as the next big thing. Unfortunately, when implemented at scale, many of these innovations end up falling short on their promises.
It is possible to build an economically viable business without many of the bells and whistles being advertised. People are doing it all the time. Unless you’re already deeply experienced in CEA, we recommend starting as simply as possible. This doesn’t mean you can’t automate or supplement later. It’s possible to start relatively-low fi while planning for future enhancement. We can show you how.
5. Start Small and Focus on Sustainable Growth
A big part of economic viability involves careful long term planning, and a willingness to grow slowly. Many of the most high profile failures in the industry have come from VC-fueled projects that embraced a “Go big or go home” mentality; with moonshot tech-valued projects that aimed to go big, fast, and then focus on profitability later.
On the other hand, most of the big success stories in our industry did not come from disruptive splashes, they came from growers who started modestly and only scaled after locking in their core processes. To be clear, it is possible to scale rapidly. But you should only attempt this once you really know what you’re doing.
We wish you all the best in following your CEA dreams, and we’re here to help you achieve them.
As always, if you have any further questions, don’t hesitate to contact us! We have real people standing by during business hours who would be excited to talk about your goals and needs.
Stay tuned for next week’s article, where we’ll take a slightly different view of things, looking at the Top advice for investors in 2023.
