Small businesses routinely fail in every industry segment, but what causes small farms to fail? In this episode I share 7 reasons why small farms fail, so you learn what not to do so that your farm thrives.
So, starting a business is a risky venture, right? And it doesn’t really matter what sector you start a business in.
If you start a restaurant, and insurance or law practice, a car wash or even a marketing agency, there’s a pretty high probability that you’re gonna fail.
That’s just a fact. But let’s just examine the reasons why these business fail. And actually, the agriculture sector has a much lower failure rate after 5 years than most industries.
For example, 50 or more of agriculture businesses are still going after five years, whereas only about 36 of construction businesses make it the long.
So the perception that some have that there’s a high failure rate in small farms isn’t born out by the data.
And one of the reasons that many farming businesses make it that long and go much longer is because they’re subsidized.
Not by the government. But by the farmer, who is most often working a second job so that the farm can work.
And that’s cool if that’s what you want to do. But, again, that’s more of a hobby farm and not really a farming business.
And the point of this episode is to discuss why farming businesses fail and what you can learn from those mistakes.
So let’s get right into them.
Here’s reason number one that small farms fail.
1) They approach it as a lifestyle and not as a business
You see, many people are attracted to farming because they love the notion of the lifestyle. They want to farm or grow produce. Or have a collection of animals, and they want to spend their days in the sunshine, producing something with their hands and being out on the land.
And that’s great.
But is that how you would approach a business opportunity? Is that the opportunity you’d pitch to an investor or a bank?…that you want to go work with your hands in the soil and have some animals?
Of course not!
Because a business approach means identifying the market first.
And that’s very different from what most farmers do, who start simply because they want to grow things. Or produce things like soap, herbs and cheese.
So they treat selling and marketing as an afterthought.
Now, as I’ve said many times, that’s a mistake.
A business is a business because it has customers that buys from it.
So you always start with the market in mind.
There’s an excellent publication for small farmers called “Growing for Market
and the title means just that…produce what the market will buy and that you can sell.
And sell at an attractive profit margin. That means focusing on high value crops and products.
For me, that was artisan cheese, raw milk and grassfed beef. For you it may mean cut flowers, herbs, soaps or what not.
But there are many farm enterprises that aren’t high margin or high value, and that leads me into the second reason why small farms fail.
2) Reason number two is that they choose low-end profit streams
In these cases, the math just doesn’t work, because the farmer chose either a low margin product or is targeting a very cost-conscious consumer.
And while Wal-Mart can pull off that strategy…at least until Amazon buries them…that’s only because they achieved enormous scale, efficiency and supply chain integration.
Those aren’t benefits you’re likely to achieve as a small farmer.
So it’s real difficult in small-scale farming to make it on the price dimension and, let’s be honest here, there’s no business opportunity selling to people who don’t have money.
Just. A. Fact.
So target opportunities with segments who do have disposable income. And select farm enterprises that don’t have such a low barr...