Tag: financing aquaponics

Commercial aquaponics is not a viable business??

“Aquaponics is still developing, and so it’s not viable as a business yet.”

One of my bigger clients dropped this on me last weekend when we met. I told him simply that he was partly right, but not in the way he thought.

Make no mistake, there are successful aquaponic farms running in several parts of the world. The picture above is one such farm. People have been successful at it and it does work. However for every success, there are dozens of failures.

Why is this? Why do most operations utterly fail, and others actually work?

Two reasons:
The aquaponic technology does not work as designed
The business model does not work as planned.

I have seen a few farms that spend so much time and resources trying to get their technology to work, that they run out of capital and fold. This is actually quite common in this phase of technological development. The internet went through this phase, as have a myriad of other industries. Even the railroads 200 years ago had this type of phase with many start-ups and only a few successes.

The reason that the successful ones work however is not so much to do with the technology.

As an example of this I have seen farms with commercially designed and set up systems from Nelson & Pade Aquaponics both succeed and fail. If two farms with the same technology can both fail, and succeed, then the challenge is in the business model.

I suspect that 95% of failures in the aquaponic sector are due to business reasons. The other 5% of failures are possibly technological.

Let’s look at a case study – AquaVita Farms.

AquaVita made a splash the last couple of months when it failed. It wasn’t the first, and it wont be the last. In looking at their operation, they had significant capital for operations, and were running for almost two years. According to a blog post by the founder, in that two years they figured out how to make the technology work, and they were just now ready to start working on building their market and selling their product.

This is not a technological failure, this is a business failure.

Any business that waits two years to start making sales deserves to die. It is not a business, it is a hobby or a research project, or something else. It’s not a business though. The primary characteristic of a business is that it has sales, and thus revenues. Any business without revenues is just a corpse waiting to fall. It may still have some cash in the bank, but without income it will fail.

An unquestioned success – Earthan Group

In September of 2013, Paul Van der Werf went to the United Arab Emirates to consult on a commercial aquaponics project there. Two weeks later he broke ground, and by January 2014 the farm was working. He proved without a question that the technology that he was using worked, and that it could be profitable as a business.

A year later, he has turned the farm over to a professional manager and headed home to Australia to move on to other projects.

One of the most important things that he did with this project is that he started making sales as soon as he had a product to sell. The margins were thin, but doable. As a result it became profitable even before the technology was fully running and before the fish system was fully operational.

The picture at the head of this article is of the view from Paul’s office at the farm looking out into the greenhouses. I highly recommend his work, and his technology.

I would rather see a aquaponic farm with a tiny greenhouse that makes $300 per month and has a net profit of $3 per month, than a million square foot operation with a negative cash flow. At least I know that the little farm will still be around long enough to make some mistakes and expand. I also know that they actually have some customers.

The first, primary, and really only job of a start-up entrepreneur is to make their company sales. Sales are all that matters to a start-up business. Technology is great, but unless your business model involves you selling your technology, it shouldn’t be in your list of worries. Get it working enough to create a product, and then take that product to market no matter how imperfect it is.

If your system is still not working properly, work nights and weekends on your technology while you are our making sales and generating market share during the day. You can get a long way on half baked technology in an aquaponic farm, but without sales, you can’t get anywhere. If you have sales though, you have money to invest in better technology, consultants, and even automation. Without it though, you will be dead in the water in a short time.

As far as the technology in the aquaponic industry goes, here is the specific breakdown

Hydroponic technology has been around commercially for about 30 years and is well proven. Thousands of successful hydroponic farms dot the globe in every imaginable configuration and climate. There are even hydroponic farms at the south pole and on nuclear submarines.

Closed loop aquaculture has been around for almost 50 years and is well proven. These farms generate millions of tons of fish every year and are fast becoming one of the primary sources of farmed fish globally.

Controlled environment agriculture and greenhouses have been around for centuries and are one of the most common places for us to get fresh vegetables now. The model works and has worked for a very long time.

Aquaponic farms are just a combination of these well proven technologies. There is not any real mystery here, it is just an outgrowth of stuff that already works. To claim that the technology is not working, may just mean that the user does not understand the technology, or that they are basing their ideas on faulty information.

All that said, there is still a lot of development work going on in the industry. I have personally developed and prototyped a half-dozen new systems and technologies in the last year alone. Most of these are in automation and new sensor and control technology. Even though the technology is proven, there is still room for improvement, and there is a lot of room for improvement in automation and control systems. This is a lot because of the advances in computer technology, and the revolution of the internet of things. This trend is hitting almost every sector of the economy now, and it doesn’t make the existing technology any less workable.

Aquaponics works. It works on a small-scale, and it works on a massive scale. The technology is well proven. The business model however is subject to the knowledge and execution of the individual entrepreneur.

If you have, or want to have an aquaponic farm, the best thing that you can do is to go build your market and make sales. Even if you don’t have a greenhouse up, or crops in the ground you can still make sales. You can sell a future crop before it’s even planted. Take a small refundable deposit, agree to the terms, and get cracking. I guarantee that you will work harder to get your operation running if you have a deadline for delivery.

Even if you find out later that you are taking a small loss on that contract, do the deal anyway.

Just make that first sale, because only then are you really in business. Once you have sales, you can work out the rest, because you will have income to support the rest of the operation.

Hang in there, you can do this!

A Non-Profit Organization is the Wrong Way to Approach Aquaponics (or Farming)

I have been approached by a few different people that want to work with aquaponics and believe that they can make a go at building a large commercial type system. When faced with the reality of the costs and ongoing needs of such a system they often turn to one of the models that they believe may work, Non-Profit organizations.

Why would a person want to run a farm as a non-profit?

There are basically two reasons:
1. They have a giving heart, and they want to do something good and altruistic for their community.
2. They have no idea how to actually run a business, and they have heard that non-profit organizations can get free money.

All of the people that I have seen suggest a non-profit fall into the latter category.

This is unfortunate because the same business principles apply no matter whether you are working for profit or not. You still have to know how to provide value to your customers. You have to run a budget and be fiscally responsible. You have to have a clear mission and goals. You still have to build a team of helpers and a tribe of customers. The process is the same, and if anything, the process is harder as a non-profit because you have to have a board of directors to answer to, and it is easier for the board to get away from the original vision of the founders.

I have said it before, and I am sure that I will continue to say it – running a business requires you to understand the fundamental principles that the business runs on. If you don’t then you are kidding yourself, your team, and your investors.

Before starting a business, the founders must have a clear vision for the company, and they must understand the processes and numbers that make the company work. Many times people look at the numbers they see for a company and they don’t like them, but they are so enamored of the idea of having that business, that they go ahead and do it anyway. This is one of the surest recipes for failure. If you cant get the numbers to work on paper, they won’t ever work.

Others take it a step further and just don’t plan anything and skip the process of running numbers on the business at all. These people have better odds at the roulette tables in Las Vegas.

So is it possible to get free money with a non-profit?

No, and it never has been. People that tell you that grant money is free are either scammers, deluded, or simply don’t understand how grants work.

There is no such thing as a free lunch.

Someone has to pay for it, and they must have a good reason to do so. If they have their needs fulfilled, they may do it again, but if not they will turn on you.

Grants are monies given out by organizations so that they can achieve goals that they have set. That money is how they get their goals met. If you can help them meet their goals, then they will often continue to support your efforts. If you are not supporting their goals however, you aren’t going to get any money now or in the future.

To get any grants you have to find money allocated for a goal that is just like yours, and then convince the manager of that money that you are going to achieve their goals with the money you want them to give you. Then after you have done everything that you promised to do, you must be able to show them that you were a good steward of their money and that you were able to achieve the goals that you said you would do for them.

See, the thing about grants is that the business is no longer about your goals. It becomes all about the goals of whomever is paying the bills. You may want to do X, but your benefactor may want you to do Q, and you are now in the position that you have to go along or not get the money you are asking for.

So if I want money to start my farm, how can I get it?

It’s actually quite easy. You just have to understand your numbers. Oh, and there will be a cost in some form.

Debt Financing

Bank financing is actually quite favorable now. If you have a good enough business plan that you know your project will make money, this is a really good place to go right now. I wouldn’t go to your local branch and talk to a loan officer though. Chances are that they know nothing about the type ok loan that you want. You also don’t want to deal with the SBA loan system. Instead, you need to look at farm financing.

The USDA, Farm Aid, Farm Bureau, and other organizations have a bunch of programs that will finance your farm at stellar terms. I saw an operation financed a few months ago at rates less than 3% and with repayment terms so flexible that a couple of bad harvests can still be oversome to keep you on your farm. These folks are literally bending over backwards to help beginning farmers and ranchers. Much of this is because of new provisions and goals set out in the 2014 Farm Bill that congress passed.

NRCS Grants

I know I said grants weren’t a thing, but there are actually several grant programs that can help farmers. Most of them run through the NRCS, (Natural Resources Conservation Service) which is the modern Soil Conservation Corps. I know of farmers that have been given money for irrigation systems, hoop-houses, fencing, drainage improvement, cover crop planting, and range management assistance. That’s just in my local area.

Remember with money like this, that they are giving it out based on the idea that you are helping them achieve their goals, but it is available to almost any landowner. If you aren’t a landowner yet, perhaps you can work with the person that owns your farmland and get them to help with this process. Just make sure that your goals meet theirs. One other thing about NRCS grants is that they almost always pay for projects that you have already completed, so you have to fork out the money on the front end. If you can’t afford it on the front end, it’s almost impossible to get their help.

Equity Investors

Investors right now are looking for profitable farming assets. If your business has either great assets, or great money-making potential, there is a lot of investor money looking for something to do. Returns in the financial markets are so lousy right now that investors are looking outside their normal pastures for good returns. In addition farmland has been a consistent store of value for centuries and there is a lot of fear of either inflation or deflation. Because of that fear investors are looking for things to invest in that will do well in either situation. Profitable farms fit the bill perfectly, and so investors have been purchasing them at record rates the last few years.

Once again, you have to know your numbers and you have to be able to run a great business. Investors hate to lose money and they are looking at farms as a safe store of value, not as something that they are going to generate outsized returns with. This means that they are looking for something safe, profitable, and hands off. You will have to convince them that their money is safe, and that it will generate a return for them. This is doable, but you have to know your stuff.

Pooling resources

One of the other considerations that I have seen work out is co-op’s. Sometimes groups of people will pool their resources to buy a farm, which they then will work together or split up so that they can all have a better place. In situations where your wish to farm is more about lifestyle than profit, this may be a good option.

Be careful with this idea though because if you go in on a large farm with 20 other people, they will be your neighbors. Their kids will interact with your kids, and your kids may even marry their kids. Many of them will hang on a long time, and these will be the crazy old people who you hang out with as you retire. So pick your friends well, as you could be stuck with them for a long time.

So, that’s four different ways to get money for your farm that do not involve a non-profit entity. There are a lot of options out there, and one of them should work in some way. Perhaps joining a few ideas together can make them better. If you have other ideas, let me know! I would love to hear what is working for the rest of the people out there.

Until next time, Hang in there! You can do this!