Once I was an agtech founder, I made the error of considering distribution was all the pieces.
I’d rack up 1000’s of miles driving from area to area, simply to get our product in yet another ag retail outlet. Every new seller felt like a victory—proof that we have been constructing one thing actual, one thing that may make it apparent to everybody that each farmer wanted what we had.
Right here’s what I obtained flawed: I believed I used to be constructing leverage. I believed every new channel, every new geography, every new relationship was creating one thing differentiated. That each one these miles and conferences and margin-sharing offers have been constructing a moat.
They weren’t. They have been simply displaying incumbents one thing they already knew—that distribution drives gross sales. And worse, I used to be burning treasured capital to show some extent that no person questioned.
Our current protection of Syngenta’s acquisition of Intrinsyx Bio obtained me excited about this once more—and the suggestions confirmed I wasn’t alone on this false impression.
The distribution mirage
Distribution seems like differentiation, however it’s truly the other. While you’re constructing to get acquired, you need to provide one thing the client can’t simply replicate. Distribution isn’t that factor—it’s their core franchise.
Take into consideration what an acquirer truly buys. They’re searching for two issues:
Unknowns they’ll’t confidently worth or de-risk rapidly. FMC’s acquisition of BioPhero enabled them to quickly speed up their organic options pipeline and add a core competency that now represents a big chunk of their product portfolio. BioPhero introduced technical capabilities FMC couldn’t construct internally.
Proof factors they’ll drop into their present techniques tomorrow. When Trimble and AGCO acquired Bilberry’s spot spraying expertise, they weren’t shopping for distribution—they have been shopping for validated expertise they may instantly plug into their present tools and seller networks.
Incumbents have already got the hammer—they’re searching for higher nails, no more hammers.
The brutal economics of distribution
There’s additionally an inherent asymmetry that makes distribution notably punishing for startups. The economics merely don’t work in your favour.
Institution prices are eye-watering. Seller onboarding, belief constructing, coaching, area workers, territory administration—these are successfully sunk prices for incumbents however huge capital investments that startups fund from fairness financing. Each greenback you spend here’s a greenback not spent on precise product growth.
Working prices worsen, not higher. As soon as operating, incumbents amortise operational prices throughout a whole lot of product SKUs. Startups bear the complete price in opposition to each sale. The incremental price for incumbents so as to add new merchandise to present networks is almost zero—a structural benefit new entrants can by no means match.
Incentive techniques work in opposition to you. Incumbent networks run on rebate schemes that strongly incentivise retailers to maintain recommending established options. You’re not simply competing on product advantage—you’re combating in opposition to monetary incentives baked into the system.
This isn’t a good battle. And combating unfair fights with restricted capital is precisely how startups waste their most treasured useful resource.
The place your startup {dollars} truly create leverage
Capital shortage means each greenback should create disproportionate worth. Right here’s the place agtech startups can effectively construct leverage that acquisition groups truly care about.
Technical threat removing. Instantly tackle the core uncertainties that make potential companions doubt whether or not one thing is even attainable. That is about proving the not possible, not scaling the attainable.
Clear product-market match. Present repeat utilization, sticky renewals, unit economics that enhance with scale. You don’t have to get all the best way there—simply shut sufficient that an skilled from an acquisition group can clearly see the remaining work is simple.
Concentrated proof. Dominate a micro-market and squeeze it for proof. Bilberry exemplifies this completely: regardless of being a French firm, they particularly selected Australia’s west coast as their unique focus as a result of it was cost-effective to serve whereas offering robust proof of their weed detection expertise in consultant crops.
When these packing containers are ticked, an acquirer can say, “Plug it in and watch margins enhance.” That’s leverage—they usually’ll pay for it.
The techniques view
This isn’t to say constructing distribution by no means is smart for agtech startups. Distribution is smart once you’re constructing a standalone enterprise that should attain profitability independently. It is smart when your expertise is definitely replicable and your solely moat is channel entry.
But when acquisition is your goal, understanding when and why distribution issues is vital.
Essentially the most profitable agtech acquisitions occur when startups recognise their core strengths and focus relentlessly on constructing leverage that incumbents can’t simply replicate. That’s hardly ever distribution—it’s often deep technical capabilities, validated product-market slot in targeted segments, or confirmed options to issues incumbents haven’t solved.
Let incumbents maintain their channels. Construct one thing so compelling they’ll be compelled to plug you into them.
- Matthew Pryor is cofounder of Tenacious Ventures, Australia’s first devoted agrifood innovation enterprise agency. Enroll right here for his or her bi-weekly publication
