Why Most Agtech Startups Fail (And How to Build One that Won’t)
Dr. Allan Gray ignites a frank discussion about what truly drives agricultural innovation and change. The central thesis is straightforward: incentives drive behavior, period. Farmers invest in research and development for things they get paid for. When farmers are paid only for yield, seed companies focus on yield. When markets pay for non-GMO corn or high-protein soybeans, companies develop those products. Nutrient density and quality metrics will follow the same pattern once financial incentives are in place.
By Dr. Allan Gray
Ag-tech startup founders often come equipped with impressive technology and a genuine passion for solving problems in agriculture. Yet many will fail, not because the technology doesn't work, but because they've missed the most fundamental rule of building companies in the agrifood system.
That rule?
Incentives drive behavior.
Period.
End of story.
The Wheat Bag Problem
During a recent industry workshop, an input provider posed a challenge that captures the core economic reality facing agricultural innovation. He said he couldn't figure out how wheat farmers pay for the bag the wheat goes in, let alone any additional R&D costs. When you're talking about a minimum of $5 to $10M for product development, plus long regulatory timelines, the math simply doesn't work.
This isn't a funding problem. It's an incentive problem.
What Farmers Actually Pay For
Here's the brutal truth: Farmers don't pay to make their soybeans greener. They don't pay to make their plants bushier. These may be interesting agronomic outcomes, but they don't matter if they don't affect the farmer's bottom line.
You either have to increase bushels or decrease expenses. That's it. Those are the only two incentives that drive purchasing decisions at the farm level.
Consider the trade providers who struggle because the value they create doesn't exchange directly with the person they're interfacing with. You might develop a soybean with 50% protein content that dramatically benefits chicken producers. But in the current commodity system, the farmer growing that soybean doesn't capture any of that value. The value exchange happens between adjacent supply chain partners, not from top to bottom.
This structural reality kills innovation before it ever reaches the market.
Follow the R&D Dollars
Want to know what drives R&D investment in agriculture? Look at what farmers get paid for.
For decades, farmers got paid for yield. So seed companies invested in yield improvements. The incentive structure was clear, and the R&D dollars followed.
But something interesting happened in the past ten years. If you walked into a seed company's R&D department a decade ago and asked about non-GMO corn, they weren't doing anything with it. Today? Significant investment and product lines dedicated to non-GMO corn.
What changed? Someone started paying for it. A market emerged. And suddenly, R&D resources shifted to serve that market.
The same pattern plays out across specialty crops. In the Midwest, we often hear that farmers need to diversify. The reality is they already are. They're growing non-GMO beans and non-GMO corn, popcorn, white corn, high amylose corn, and dozens of other specialty varieties.
Why? Because people will pay for those products. When someone says, "Here's what we pay for," farmers diversify to capture that value.
The Nutrient Density Paradox
Take nutrient density as an example of how incentives either enable or block innovation. There's growing interest in crops with higher nutrient density. Some evidence suggests we've pushed yields so far that we've lost nutrient density in the process. In soybeans, protein levels have declined from 48% to 44% as yields increased.
So where are the best opportunities for nutrient-dense crops? When people start paying for nutrient density, we'll start doing more of it. Right now, there are small niche markets where nutrient density commands a premium, but it's still limited because the payment infrastructure doesn't exist at scale.
It won't happen without clear economic incentives.
What This Means for Ag-tech Entrepreneurs
If you're building a company in the agrifood space, your first question cannot be whether the technology is cool. Your first question must be who pays for it and why.
More specifically:
- Does your solution increase bushels or decrease expenses for the farmer?
- If the value accrues somewhere else in the supply chain, how will it flow back to the farmer?
- Is there a payment mechanism that already exists, or do you need to create one?
At DIAL Ventures, we work with corporate partners across the agrifood value chain precisely because we need to understand where value is created and captured at every node. We can't build venture-backed startups by ignoring the incentive structures that actually drive adoption.
Why Policy Is Not a Strategy
Some entrepreneurs want to believe that government programs will create the incentives their business model needs. That is not how this system works. Policy is slow, reactive, and rarely aligned with what is happening on real farms.
The policies we have in place do not match the way farming operates today. We still cannot get base acres aligned with actual cropping patterns. That should tell you everything about how far policy discussions are from the decisions farmers make every day.
If your business depends on policy makers designing a new payment mechanism or rewriting the rules of the commodity system, you are building on sand. Start with the incentives that exist today. Build for the economics that are already in place. If a policy tailwind shows up later, great. But it cannot be the foundation of your company.
Building for Reality, Not Hope
Understanding that incentives drive behavior is liberating because it gives you a clear framework for validation.
Before you spend months building a product, answer these questions:
- Who benefits from this innovation?
- How much do they benefit?
- Can they capture that benefit in the current system?
- If not, what needs to change for them to capture it?
- Who has the power to make that change?
- What's their incentive to do so?
If you can't answer all of those questions clearly, you don't have a business yet. You have a solution looking for a problem.
The companies that succeed in agrifood are the ones that align their innovation with existing incentive structures or that have the capital and patience to create new ones. Everything else is wishful thinking.
At DIAL Ventures, we start every fellowship cohort by identifying where real economic incentives exist in the system. We work with corporate partners who are already paying for certain outcomes, or who have committed to paying for them. We build our startups at the intersection of real problems and real willingness to pay for solutions.
That's not the glamorous story. But it's the one that leads to successful companies that create lasting impact in the agrifood system.
By Dr. Allan Gray
Ag-tech startup founders often come equipped with impressive technology and a genuine passion for solving problems in agriculture. Yet many will fail, not because the technology doesn't work, but because they've missed the most fundamental rule of building companies in the agrifood system.
That rule?
Incentives drive behavior.
Period.
End of story.
The Wheat Bag Problem
During a recent industry workshop, an input provider posed a challenge that captures the core economic reality facing agricultural innovation. He said he couldn't figure out how wheat farmers pay for the bag the wheat goes in, let alone any additional R&D costs. When you're talking about a minimum of $5 to $10M for product development, plus long regulatory timelines, the math simply doesn't work.
This isn't a funding problem. It's an incentive problem.
What Farmers Actually Pay For
Here's the brutal truth: Farmers don't pay to make their soybeans greener. They don't pay to make their plants bushier. These may be interesting agronomic outcomes, but they don't matter if they don't affect the farmer's bottom line.
You either have to increase bushels or decrease expenses. That's it. Those are the only two incentives that drive purchasing decisions at the farm level.
Consider the trade providers who struggle because the value they create doesn't exchange directly with the person they're interfacing with. You might develop a soybean with 50% protein content that dramatically benefits chicken producers. But in the current commodity system, the farmer growing that soybean doesn't capture any of that value. The value exchange happens between adjacent supply chain partners, not from top to bottom.
This structural reality kills innovation before it ever reaches the market.
Follow the R&D Dollars
Want to know what drives R&D investment in agriculture? Look at what farmers get paid for.
For decades, farmers got paid for yield. So seed companies invested in yield improvements. The incentive structure was clear, and the R&D dollars followed.
But something interesting happened in the past ten years. If you walked into a seed company's R&D department a decade ago and asked about non-GMO corn, they weren't doing anything with it. Today? Significant investment and product lines dedicated to non-GMO corn.
What changed? Someone started paying for it. A market emerged. And suddenly, R&D resources shifted to serve that market.
The same pattern plays out across specialty crops. In the Midwest, we often hear that farmers need to diversify. The reality is they already are. They're growing non-GMO beans and non-GMO corn, popcorn, white corn, high amylose corn, and dozens of other specialty varieties.
Why? Because people will pay for those products. When someone says, "Here's what we pay for," farmers diversify to capture that value.
The Nutrient Density Paradox
Take nutrient density as an example of how incentives either enable or block innovation. There's growing interest in crops with higher nutrient density. Some evidence suggests we've pushed yields so far that we've lost nutrient density in the process. In soybeans, protein levels have declined from 48% to 44% as yields increased.
So where are the best opportunities for nutrient-dense crops? When people start paying for nutrient density, we'll start doing more of it. Right now, there are small niche markets where nutrient density commands a premium, but it's still limited because the payment infrastructure doesn't exist at scale.
It won't happen without clear economic incentives.
What This Means for Ag-tech Entrepreneurs
If you're building a company in the agrifood space, your first question cannot be whether the technology is cool. Your first question must be who pays for it and why.
More specifically:
- Does your solution increase bushels or decrease expenses for the farmer?
- If the value accrues somewhere else in the supply chain, how will it flow back to the farmer?
- Is there a payment mechanism that already exists, or do you need to create one?
At DIAL Ventures, we work with corporate partners across the agrifood value chain precisely because we need to understand where value is created and captured at every node. We can't build venture-backed startups by ignoring the incentive structures that actually drive adoption.
Why Policy Is Not a Strategy
Some entrepreneurs want to believe that government programs will create the incentives their business model needs. That is not how this system works. Policy is slow, reactive, and rarely aligned with what is happening on real farms.
The policies we have in place do not match the way farming operates today. We still cannot get base acres aligned with actual cropping patterns. That should tell you everything about how far policy discussions are from the decisions farmers make every day.
If your business depends on policy makers designing a new payment mechanism or rewriting the rules of the commodity system, you are building on sand. Start with the incentives that exist today. Build for the economics that are already in place. If a policy tailwind shows up later, great. But it cannot be the foundation of your company.
Building for Reality, Not Hope
Understanding that incentives drive behavior is liberating because it gives you a clear framework for validation.
Before you spend months building a product, answer these questions:
- Who benefits from this innovation?
- How much do they benefit?
- Can they capture that benefit in the current system?
- If not, what needs to change for them to capture it?
- Who has the power to make that change?
- What's their incentive to do so?
If you can't answer all of those questions clearly, you don't have a business yet. You have a solution looking for a problem.
The companies that succeed in agrifood are the ones that align their innovation with existing incentive structures or that have the capital and patience to create new ones. Everything else is wishful thinking.
At DIAL Ventures, we start every fellowship cohort by identifying where real economic incentives exist in the system. We work with corporate partners who are already paying for certain outcomes, or who have committed to paying for them. We build our startups at the intersection of real problems and real willingness to pay for solutions.
That's not the glamorous story. But it's the one that leads to successful companies that create lasting impact in the agrifood system.