Business on a Small Scale

Tech companies seem to be able to do nearly everything well from deliver books (Amazon) to rides (Uber) to groceries (Fresh Direct) to cleaning (Handy) and the list goes on and on. So far, however, tech companies have had far less success creating farm-to-table solutions for urbanites. To understand why, take the case of Farmigo.

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Why Farmigo’s Farm-to-Table Business Failed

Only a few months ago in select U.S. cities, like New York and Seattle, Farmigo was delivering amazing fresh food to urbanites and giving a huge part of the proceeds (often over 40%) back to local farmers. This, to be clear, is far more than most farmers ever see from their crops–in most cases, the return is well under 25%. In short, the $2 bunch of coriander you just bought at Whole Foods is likely only going to trickle about 50 cents or less into your local farmer’s bank account. Needless to say, then, anyone who loves fresh local food and cares about things like how much farmers get paid had every reason to love Farmigo. But not everyone was thrilled about their approach.

Like Fresh Direct and other delivery services, one could order their produce and other local goods online. The service, however, delivered food only once or twice a week and only to businesses, schools and other groups. As reported in TechCrunch: “Traditionally, customers who wanted to buy from local vendors and growers would have to visit their area’s farmer’s market on a weekend – an operation that’s typically open only for a few hours, and isn’t always convenient to get to. Farmigo instead brought the area farms and their inventory online, so consumers could shop at any time.” That’s right–in this high-tech and convenient era, with Farmigo, you still had to lug your groceries home from work or school.

Then, in early July, Farmigo announced that it was shutting down its farm-to-table operations. So what went wrong? A recent article in CrunchBase reported that money wasn’t necessarily an issue–the company had raised $26 million. Nevertheless, the business plan wasn’t considered sustainable without major fundraising efforts moving forward. This, reports indicate, led Farmigo’s key owners to make the difficult decision to return its original focus, which was providing a CSA software management platform to farmers across North America.  As a company spokesperson explained: “It came down to whether we wanted to be a vertically integrated company that took on all responsibilities for all logistics, all software…at the end of the day, we thought that was too much to take on as one company…Our expertise is in software, not in logistics.” But what was really at the center of the Farmigo failure?

The Tech Industry’s Failture to Understand Small Business

As Guillermo Payet, President of LocalHarvest.org, recently wrote on the Local Harvest site:figs

The most recent case of a heavily-funded venture failing is Farmigo. They launched a CSA Software product in 2009 in direct competition with our CSAware. I projected at the time that their plan was to learn how CSAs are run and later use the knowledge to compete against their own CSA clients. This proved true when in 2011 they re-launched as an “Online Farmers Market”. With most of $26 million dollars now spent, Farmigo proved unable to transform the CSA model while skimming 20% or more from CSA profits. While doing this, they squeezed many established CSAs and (in worse cases) helped drive CSAs out of business in the markets where they operated.

According to Payet, then, the real issue is a profound gap between the tech sector’s scale of operation and desire for huge returns on investment and the reality of most CSA members who are small business owners, often running family-based businesses. As Payet asks, “Just imagine what could have been achieved if those billions [in reality, only millions] had been invested in promoting family farms and locally-grown agriculture.”

While Farmigo may be gone, CSA persists and of course, anyone looking to buy direct from a farmer in their local region can continue to do so, and of course, the best way to understand small businesses is simply to go to these businesses without a tech-based interface.

August 18, 2016   Updated :November 16, 2016   small business   

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