Startup Series: CODA Farm Technologies

Oct 27

Today's guest is David Wallace, co-founder and CEO of CODA Farm Technologies, which provides remote monitoring and control for agricultural irrigation pumps and irrigation reels.

The looming water crisis is often described as one of the major symptoms of climate change. You hear about it in the news, coupled with drought-stricken images of dried up riverbeds and diminishing reservoirs. The Western U.S. is currently facing the largest mega drought in a millennium. The Colorado River, which provides water to approximately 40 million Americans, plus much of the irrigation for some of the most productive agricultural land in the U.S., is in an existential crisis. Lake Mead is at 25% capacity and groundwater across the West is being depleted rapidly. So what’s to be done to ensure the future of our water supply and food systems?

To understand how farmers across the country are thinking about all of this, CODA Farm Technologies is on the forefront of selling irrigation efficiency tech to farmers. You’ll be surprised to hear that cost savings due to water efficiency isn't even a key selling point for David’s company, and that's because of how agricultural water is (or is not) priced in much of the U.S. today. Cody and David have a really interesting conversation about the state of agricultural irrigation and how he’s helping farmers with time savings and automation that are ultimately driving CODA Farm’s current sales.

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Episode recorded on September 12, 2022.

In this episode, we cover:

[3:13] David's background and the origin of CODA Farm Technologies
[9:28] An overview of farm irrigation
[13:21] What's top of mind for farmers today around the U.S.
[26:16] Value propositions for different farmers
[27:11] Economics of water usage and impacts on a farmer’s bottom line
[29:18] CODA Farm's technology and pricing
[31:27] CODA Farm's go-to-market consumers
[34:44] Generational changes on farms and a look at the modern farmer
[36:44] How David made the decision to go the venture route for scale and the company's seed round with Lowercarbon
[37:32] Data on water savings
[40:28] An overview of the irrigation control industry

Jason Jacobs (00:01):
Hello everyone, this is Jason Jacobs.
Cody Simms (00:04):
And I'm Cody Simms.
Jason Jacobs (00:05):
And welcome to My Climate Journey. This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (00:15):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.
Jason Jacobs (00:26):
We appreciate you tuning in, sharing this episode, and if you feel like it, leaving us a review to help more people find out about us so they can figure out where they fit in addressing the problem of climate change.
Cody Simms (00:40):
Today's guest is David Wallace, co-founder and CEO of CODA Farm Technologies, which provides remote monitoring and control for agricultural irrigation pumps and irrigation reels. The looming water crisis we face is often described as one of the major symptoms of climate change. The Western US is currently facing the largest mega drought in a millennium. The Colorado River, which provides water to some 40 million Americans, and provides much of the irrigation for some of the most productive ag land in the U.S., is in an existential crisis.
(01:15):
Lake Mead is at 25% capacity and groundwater across the U.S. West is being depleted rapidly. I was looking forward to talking with David at CODA Farm Technologies, which is on the forefront of selling irrigation efficiency tech to farmers, to understand how farmers are thinking about all of this. And I was gobsmacked during this conversation to hear that cost savings due to water efficiency isn't even a key selling point for him when talking to farmers, and that's because of how agricultural water is priced, or not priced, in much of the U.S. today. We have a really interesting conversation about the state of agricultural irrigation in the US and about how he's found that helping farmers with time savings and automation is what's driving his sales at present. I learned an absolute ton and hope you do too.
(02:08):
David, welcome to the show.
David Wallace (02:09):
Hey, thanks for having me. Good to be here.
Cody Simms (02:11):
Well, David, I'm so intrigued by what you're building and in the backdrop of what's going on with water in much of the U.S. I live in California, so definitely the Western U.S. I grew up in Kansas, so grew up around farming communities and just understand obviously that access to water has almost felt like a fundamental right in a lot of the United States, and it feels like we're on the precipice of this changing somehow.
(02:41):
And so I feel like your technology at CODA Farm is really there to help us manage through a realization that water isn't just this free resource that's wildly abundant for everybody all the time. And I'm interested to dive into some of that. But first maybe tell us a little bit about you and about your background, and I believe you started the company with your brother and you two grew up on a farm together, so I don't want to steal all the thunder of your backstory, so maybe share a little bit about all that with us.
David Wallace (03:13):
Sure, yeah, I'd love to. Yeah, so my brother and I grew up in Skagit Valley, Washington. It's primarily a farming community up in the Pacific Northwest. We were actually both homeschooled for quite a few years. I was homeschooled at least part-time for eight years, and a good chunk of that education was on the farm. I started driving tractors and cruising around with my dad and grandfather when I was about 12 years old and is part of daily life growing up all throughout high school and even during summers in college as well. So it was a tough decision after college to leave that, but I went off to Johns Hopkins University to pursue a career in chemistry. I ended up getting a PhD at Hopkins in solid state chemistry, but knew that I didn't really want to continue doing research or being a professor.
Cody Simms (04:05):
It's good to hear that being at home at school didn't deter you from education in any way. You clearly found out how to embrace it and take it to its fullest potential.
David Wallace (04:14):
Yeah, yeah, I guess so. I mean, had a lot of freedom in homeschool and so we covered the core subjects quite a bit, but then a lot of it was learning how to self-teach things. And so I think that that's served me and my brother pretty well. So thanks to my parents, if they're listening to this or seeing this, for doing that. But anyway, so wrapped up in graduate school and realized that I had a pretty strong skill set in data analysis and programming, and so was able to transition over into the big tech world.
(04:45):
I worked at Amazon for about four years as a data scientist, machine learning type person, and that was also super useful because I just was immersed with a lot of really talented people. But ultimately toward the end of that time I was realizing that I really wanted to get back to my roots, so to speak, and really learn more about how the farm works and about how agriculture works in general. So I quit that desk job and went back to the family farm full time in late 2018. And yeah, that's really where almost immediately CODA Farm Technologies got kicked off. And my brother during that time had kind of a similar background. He went off and got a degree in physics, worked as a software engineer, and then I had this thing that I was working on and convinced him to come back and do it with me. So...
Cody Simms (05:35):
You guys were ahead of the trend of the Great Resignation, I guess?
David Wallace (05:38):
Yeah, just slightly. Yeah. Funny thing, we actually incorporated the business right at the start of the pandemic, right when lockdown happened, and so it was pretty timely I guess.
Cody Simms (05:52):
And so being back on the farm, how did that inspire you with the idea for what you wanted to try to pursue?
David Wallace (06:00):
Well, it didn't really inspire me so to speak. It was more that this problem just kind of got thrust in front of me. It was January, so we had just finished harvest and had a little bit of downtime and my dad was like, "Hey, we have this really pesky problem with our irrigation systems. They're super failure prone. We spend a lot of time chasing them around, They're really wasteful, they damage our crops and I feel like we could fix this problem. We just need to go buy a monitoring system of some kind." And so I was like, "Sure, yeah, I'm sure that's easy to find. I'll see what's out there and get a couple of different versions, figure out what works best." But what I found when I started doing that was that nothing existed for us. And so I was equal parts excited and maybe a little bit nervous to go off and build something.
(06:50):
But the prototypes that I built were just a really simple messaging system that could tell us if a piece of equipment was malfunctioning. And then the critical piece was if there was some kind of malfunction, or if the sprinkler stopped moving as it was supposed to, it would then send a message to our service which would send a message to the pump that was potentially a couple of miles away and tell that pump to turn off so that no water would be wasted and the crop wouldn't be damaged. So that was really how it got started. It was just a problem that was really pesky on our farm and something that needed to get solved and it kind of snowballed from there.
Cody Simms (07:30):
I mean, I think for so many listeners who are listening and have dug into various parts of what's going on with climate change, a lot of parallels between what you're describing and what's been happening in terms of smart metering and smart paneling of home and commercial industrial buildings over the last maybe five ish years, where on the energy side, we've also gone from a world of, "I don't really know what in the world each of these different things I'm using are doing from a consumption perspective," to having very granular level understanding of each utility or each appliance on your local panel and then being able to even control individual level items. It sounds like water is following a similar pattern just a few years later. Is that a correct way to think about it?
David Wallace (08:21):
Yeah, I would say definitely, and this is kind of a self aggrandizing comparison, but I liken it to what Nest did for the home thermostat. It's a piece of equipment that's in everyone's homes. It's probably been there for 10 to 20 years. And just by adding a simple piece of electronics that's really just got a switch in it that can be controlled in an automated fashion, you gain huge efficiencies and you also gain this new control over your home thermostat that you didn't have before. And so that's really what we're trying to do with farm equipment. They're pieces of equipment that are replaced often once in a generation, and so you can't expect them to have any sort of electrical equipment or remote monitoring on them. And so when we bring a really simple retrofittable device to that, it opens up a whole new world of possibilities that come with big efficiency gains.
Cody Simms (09:13):
And the primary piece of farm equipment that you work with, I think there are two pieces, right? There's the pump and the reel. Is that correct? Maybe for those of us who don't know a ton about farm irrigation, maybe walk us through what farm irrigation looks like today.
David Wallace (09:28):
So farm irrigation on our farm is actually not the way that it's done throughout most of the world, and that's what made this a pretty good market entry point for us as a startup. The way we up in Skagit Valley irrigate a lot of our crops is through this thing that's called a hard hose irrigation reel. You can think of it as one of the hose reels that you might have mounted to the side of your house. Basically you turn it and it recoils that hose up, except on the other end there's a sprinkler that's on wheels. And so that sprinkler is pumping out water in an even pattern as it's being towed slowly across the field. And so they can cover about 10 acres in a day or in 12 hours. And so you can cover about 24 acres with one, which is a good area of land. But they're entirely mechanical systems.
(10:17):
So it's driven by either a gasoline motor or some kind of water turbine that's generating that necessary energy to pull that sprinkler across the field. And so as a result, they can fail, they can stop moving for a pretty large number of reasons. And when that does happen, that sprinkler just stays stopped there in one place and continues to pump out water at sometimes 400, 500 gallons a minute without the farmer knowing, because that reel or that sprinkler can be 30 miles away. And it's not that this can happen, it does happen. It happens a lot. And from our data now we know that it happens between five and 10% of all the times that you irrigate with one of those machines. So having remote monitoring, alerting and automatic pump shutdown, it's almost a must have at this point with that type of irrigation.
(11:09):
So that's what we started with. They're manufactured by small manufacturers throughout the world. There's, I think, at least 10 in the United States alone. And they're very regional. And so it's a super fragmented market and our solution works on any one of them. So it's a great way to add that advanced functionality to the existing equipment. So that's what we started with. And then as our hardware and software platform have evolved, we've expanded to now being able to control different kinds of pumps, being able to monitor things like flow rate very accurately, monitor pressure control things, turn things on and off and open valves and things of that nature. So there's a pretty broad variety of things that you can do with our hardware and software and we're expanding that pretty much as quickly as we can. So that's the introduction.
Cody Simms (12:05):
Super appreciate it. And I want to come back to your product and really dive into it, but I want to turn our attention to the broader backdrop of why farmers are paying more attention to this now. You mentioned this is equipment that you may only replace once in a generation. Not your technology, but just the broader irrigation equipment. I saw a quote today in an interview in ProPublica with a guy named Jay Famiglietti, who's actually the chief scientist at a startup called Waterplan that's been on the pod MCJ. We're an investor in that company, he's the chief scientist there.
(12:37):
And his quote is that, "Water is the messenger that's delivering the bad news about climate change to your city." And that really struck me as thinking about climate change can feel kind of abstract, but having water issues is very real. I mean, to me, living in California, wildfires is the thing that's hitting us right now, but it's very clear that water issues are coming next. And I'm curious for you, as you talk to farmers, what are you hearing from them in terms of how they're thinking about irrigation and what is most top of mind today?
David Wallace (13:21):
Sure. Yeah. Well, so what I hear from farmers really varies by region. We have gone down and visited places in Southern California that have been dealing with water stress and drought for a long time, and they have a really high degree of technical and data competency. They have great controls in place, they use the most efficient drip tape, and they're largely very optimized and very conscious about the water that they're using. But then you go to different areas of the country where water stress and drought have not historically been an issue, and farmers don't really know or care how much they're using, and that's not a knock against them. It's not to say that they're less climate conscious than others, it's not something that they've had to deal with and they're already under so much other stress in different areas of their business that it hasn't made financial or time sense for them to invest energy into it.
(14:22):
And then the other thing to think about is water rights in a lot of areas have been defined for a very long time. And I'm not well versed on the history of this, but I know that in some areas, farmers feel, and believe based on their water rights, that they actually have to use the water or they'll lose access to it. And that is true in many cases. And so you get folks that are choosing crops to irrigate simply because they can use the water on it, like alfalfa. Super water intensive crop.
(14:53):
So yeah, I mean that's really the takeaway. It varies by region and it is interesting to see how that has accelerated in recent years with historic droughts last year throughout the West. And we were hit super hard in the Pacific Northwest. And then now what's happening with the Colorado River and with Lake Mead being so low, it's really crazy to see how this problem has been thrust into the public eye. Yeah, I mean, John Oliver did a story on it two weeks ago. And so it's just interesting to see something that we have been hearing for as long as I can remember, that water is going to be the next big scarce resource, and now seeing that actually come to pass in a lot of areas is really, really interesting.
Cody Simms (15:40):
I mean, just some of the facts, again, I pulled them from that ProPublica article I just recommended, so certainly people dig that up if you get a chance. But the Colorado River supplies water to 40 million Americans, and of which then a lot of that supplies food production to a lot of the rest of the country, right? Particularly in the winter, I think the Western States are providing a lot of the winter food to the whole country. And I saw information that, I think it was earlier this year, the Bureau of Reclamation basically, which is the US Federal Agency, said that the seven states that draw water from the Colorado River have to find ways to cut their consumption by as much as 40% or the federal government will do that for them. Which is really interesting. Federal legislation on water use doesn't feel like something I've heard come up, but it sounds like we may be on the cusp of that.
David Wallace (16:31):
Yeah, it's very wild. And 40%; you can't get there without touching agriculture in a major way. I mean, that's going to be very contentious. I can't speak to how that's going to play out. What I will say is I think the metric that gets thrown around a lot is that 80% of the nation's freshwater supply is used on farms, and in many cases, up to half of that usage can be wasted to things like runoff, evaporation, and even just overwatering. And so there are very clear ways in which farmers can reduce their consumption without too much impact to their daily work. For farms that are using center pivots, they can switch to different nozzles that reduce the pressure requirement and increase the droplet size. There are obviously data driven ways that you can make more precise decisions about how much water to irrigate.
(17:29):
But I think for a lot of farmers, it is going to come down to what kind of impact those changes are going to have on their bottom line and on how difficult it is to run a farm. And so this is one of the reasons why, with our product, when we're talking to farmers, we don't heavily emphasize the efficiency gains that you're going to get. It's more about how it's going to improve your daily work, how it's going to impact your yields, and how it's going to save you on things like gas and labor. And so that immediate impact on just day-to-day life and bottom line, I think, is what can drive a lot of efficiency in ag and water use versus top down cuts and mandates about how much water can be consumed.
Cody Simms (18:16):
We're going to take a short break right now so our partner Yin can share more about the MCJ membership option.
Yin Lu (18:23):
Hey folks, Yin here. A partner at MCJ Collective. Want to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019 and have since then grown to 2000 members globally. Each week we're inspired by people who join with different backgrounds and perspectives. And while those perspectives are different, we all share in common is a deep curiosity to learn and bias to action around ways to accelerate solutions to climate change.
(18:52):
Some awesome initiatives have come out of the community. A number of founding teams have met, nonprofits have been established, a bunch of hiring has been done, many early stage investments have been made as well as ongoing events and programming like monthly Women In Climate meetups, idea jam sessions for early stage founders, climate book club, art workshops, and more. So whether you've been in climate for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and then click on the members tab at the top. Thanks and enjoy the rest of the show.
Cody Simms (19:28):
All right. Back to the show.
(19:28):
Are we seeing significant price increase in the cost per gallon starting to happen? I mean, again, probably depends on region, but in general, how are the economics of water playing out with farmers right now?
David Wallace (19:40):
I actually can't speak to that very well. What I will tell you is I think you'd be surprised by how few farmers actually have to pay for the water that they're withdrawing. In a lot of cases, it's actually unmetered, and that's definitely the case for groundwater withdrawals, which are coming under more scrutiny.
Cody Simms (19:57):
Yeah. And I think groundwater, to some extent, I've heard there's a little bit of robbing Peter to pay Paul, which is, "Hey, the Colorado River's really low, so okay, stop using water out of the river. Instead, we'll start sucking it out of aquifers that are also going to be running dry." And so the economics of water feel like a total black box to me that I'm just starting to try to understand. And it feels so critical because it's how we all eat.
David Wallace (20:22):
Yeah, I mean, I think they're a black box to a lot of people. I don't think you're alone in that.
Cody Simms (20:27):
And do you foresee a world where either... I mean, today, farmers can grow whatever they want. No one says, "Ah, you can't grow almonds here, or you can't grow carrots there," or, "Oh, this is only for lettuce." Do you foresee a world where there becomes restrictions on what can be grown where? Or do you see a world where we take what we've done with oil, which is build huge pipelines and actually transport water from... You mentioned some parts of the country, you don't even have to think about this, because some parts of the country are actually experiencing too much water because of flooding. Do you think there's a world where we're actually physically moving water around the country, or are we shifting what is grown where?
David Wallace (21:06):
I don't see a world in... You'll have people following up and saying, "Well, it's definitely going to happen," but the sheer volume of water that you need to move to make a dent is really staggering. So I don't see that ever being cost effective. I mean, ultimately it's an energy problem. If you have infinite energy, you can just have desalination plants everywhere and get all the water you need from the ocean. And so moving millions of acre feet of water is not ever going to make financial or energetic sense, I think.
(21:38):
So, no, it's ultimately going to be probably driven by a supply constraint and growing things like alfalfa in the Arizona desert is not going to work anymore. It's not going to be profitable. Now, again, I can't speak to what the mechanism behind that supply limitation is going to be, but yeah, it's difficult to know.
Cody Simms (22:03):
No, it's super interesting. So what I'm hearing is a lot of what I hear in climate, which is, especially if farmers are able to use groundwater where it's not even metered, they're not even paying per liter, the externalities of their choices are definitely not baked into the price of water. Much like the fossil fuel industry hasn't had the externalities of carbon emissions baked into the price of drilling and producing oil, and these are all things that are shifting in the energy world. It sounds like they're starting to potentially be policy level awareness of this at the economic level with water, but we're sounds like maybe two decades, a decade or two behind where the energy world was to some extent.
David Wallace (22:52):
Yeah, I'm not sure. So I think the problem with just capping the amount of water that a farmer can use or dictating what crops they can grow and what they can't is giving them the tools to actually be able to use the water that they have efficiently. And I think the necessary equipment upgrades to gain the necessary efficiencies are cost prohibitive for a lot of farmers. And they're also, in a lot of cases, too complicated.
(23:18):
You could say it'd be amazing if every single farmer could irrigate their crops with drip irrigation, but that's not even physically feasible for a lot of crops. And so the next might be center pivot. Install the most efficient center pivot systems wherever possible. That's very, very expensive and many farmers just can't afford that. And then one of the additional state of the art things, it's promised but not practiced a lot, is true variable rate application of water. So where you do have one of those automated center pivots actually being able to apply down to the square meter or even acre level, the amount of water that's required by the crop in that specific location, it is not something that's accessible to a lot of farmers because it's cost prohibitive. The sensors exist, the controls exist, but it's hundreds of thousands of dollars and a lot of probably training and maybe even hiring to achieve that.
Cody Simms (24:17):
And you said earlier, selling efficiency doesn't seem to be working for farmers, nor working for you in terms of getting farmers interested. And I presume that's because people have been trying to sell these products for a long time and they're just too expensive for the average farmer to implement. Plus, again, if they're not even necessarily paying for the cost of their water. At the end of the day, everyone wants to be good stewards of the land, but it's not like the economics of being an agricultural steward are easy to begin with. And so you got to make hard choices.
(24:49):
So what is working? How are you going to market with farmers and you're selling them technology that can help them, you said of the type of equipment you were using on your farm, 10 to 15% of the time it was malfunctioning, essentially. Not your equipment, but the irrigation system was malfunctioning. So huge efficiency gains, but how are you actually getting farmers to pay attention to it?
David Wallace (25:14):
It's definitely a challenge. When we first founded this company, we were operating under the assumption that if you show farmers a great product that is going to help them, or if you show that to their local dealers, that their dealer is automatically going to want to carry your product and go and tell everybody about it. But that is not the case at all. Reaching farmers is actually pretty hard.
(25:33):
We are having success with digital marketing using platforms like Facebook, and Instagram and Google. We have great word of mouth, which is nice. When farmers use your product, it gives them such a tangible benefit in their day-today work that they're compelled to tell other people. So that's fantastic. But I wish there was a way that you could blast out to the farmer, U.S. farmer Slack channel and just say, "Hey, put this on all of your irrigation equipment, it's going to save you-"
Cody Simms (26:04):
What's the value prop for them though? You mentioned word of mouth is working, social media's, digital marketing's kind of working. What are you actually selling if you're not selling, "Hey, your water bill is going to go down."?
David Wallace (26:16):
So it varies by farmer. So a lot of the farmers who use our types of irrigation systems are relatively small farmers. They have maybe a couple hundred acres and it's just them and maybe one or two farm hands. So the biggest value prop to them is just the way that it makes their life easier on a day-to-day basis so they don't have to get up in the middle of the night to go and check on the irrigation system. Instead they can pop open their phones and see that it's doing what it should be doing. Or they don't have to sprint across the field to turn a pump off because a pipe has burst. They can open their phone and turn it off.
Cody Simms (26:48):
And again, just to underscore the concern, at least to most farmers today isn't, "Oh, I'm using too much water." It's, "Oh, this part of my field is getting flooded and this part of my field is not getting enough water, and so I need to know that so I can make sure that my crops are producing as I expect." Is that correct?
David Wallace (27:08):
Exactly. Yep.
Cody Simms (27:10):
Okay.
David Wallace (27:11):
And in a lot of areas overwatering is not a concern. It's about how do I get water to all the places that need it with limited resources? And so if you can figure out a way to make that day-to-day operation more efficient, then you can give them a way to more efficiently allocate their water. So for larger operations, there are very clear economics in terms of how much labor you save and how much fuel you save on a day-to-day basis. And that's another pretty big benefit. One of the surprising things is just how much driving people do in old pickup trucks that are probably getting 12 miles per gallon just to go and look at all these things. And so if you can save them six trips a day to a field that's 10 miles away, you've reduced a lot of fuel usage and a lot of labor too.
(28:03):
And so those are the things that we find work really well. It's daily quality of life, more efficient day-to-day operations, and then savings that impact your bottom line on things like fuel and labor. And so this is why I was really shocked when I put together the Excel spreadsheet and calculated how much water we're actually saving, because it's a staggering amount. And so I have two different ways that I talk about our business, because one is the way that appeals to farmers, and then the other is the way that I think is actually truly important in the grand scheme of things. And when we're talking about climate, which is water savings and carbon emissions reduction. So yeah, that's an interesting thing.
Cody Simms (28:45):
Such an amazing 'aha' for me at least to understand that the economics of water usage honestly isn't even really affecting the bottom line of farmers today. But it's all the other ancillary...
David Wallace (28:57):
Not all.
Cody Simms (28:57):
... Time savings and... Yeah, that's super interesting. And so let's talk about your product in particular. I saw on your website, it doesn't require any mechanical installation or anything, it's a fairly simple add-on that I assume has an acoustical listening device or something that is sensing when water is on or off, is that correct?
David Wallace (29:18):
To sense when water's on and off, we have a pressure transducer that we supply and it's a common fitting, so you can just add it in to the port that's already on your equipment, you might need an adapter, but it's a pretty straightforward thing. And then we have developed a proprietary method of detecting when the reel is in motion and when it isn't and it uses magnets in a special sensor. And then we have other things like GPS and it has its own embedded cellular connection and there are a variety of other sensors that we can use as well.
(29:51):
But yeah, at the end of the day you can install it in about 45 minutes on pretty much any piece of equipment. And we have videos that show that process from start to finish online. So that's really the key, is being able to put it on anything and do it quickly in the field.
Cody Simms (30:07):
And how are you pricing it with farmers today?
David Wallace (30:10):
We actually unfortunately just had to increase our prices. So we're in the low $1,000 range for setting up an individual system. I think it costs like $1,200 to retrofit a pump and about $1300 to retrofit a reel. And then we have an annual subscription that it varies by installation, but the highest it goes is $360 per piece of equipment per year. So the recurring fee is what farmers often balk at and other folks in the industry have chosen to completely front load that.
(30:44):
So basically they'll sell the same rough package that we're selling, but it'll cost $3,000. And that's because they're front loading eight years of their service and probably a pretty significant markup at the front, but not charging reoccurring fee. We find that because we have such clear ROI that that recurring fee is just a better way to ensure that we're improving the product continually, getting a more predictable revenue stream and reaffirming our commitment to farmers year after year versus just selling them something that's one and done.
Cody Simms (31:18):
And from a go-to-market perspective, what are the types farmers are starting with now and how do you see that changing over time?
David Wallace (31:27):
I mean, yeah, it's largely dictated by what geographies use those hard hose reels that we started off with. And now we are just starting to expand into the more broad pumping market as a whole. So before there were probably less than 10,000 individual farms in the United States and Canada that could potentially use our service, and now we're expanding to probably north of a quarter of a million potential customers.
Cody Simms (31:52):
And I assume you mentioned that the people using the equipment like you all had in Washington was mostly small family owned farms, and as you expand your product suite, are you now hitting larger, more commercially managed farming companies as your customers?
David Wallace (32:08):
Definitely. I mean, anyone, with a few small exceptions, any farm that's pumping water can now use our equipment on their pumps. It's just a really simple way to control and monitor things remotely, and we're adding features to it every day that are going to help with efficiency gains, not just in water, but labor and fuel and all of that. So yeah, pretty much any irrigated farm now can use Farm HQ on their pumps.
Cody Simms (32:33):
And what's been the most surprising to you, David, as you've been building the business? What assumptions did you come into it having grown up on a farm that, as you got out in market, you've learned? Whether it's technical assumptions, whether it's sales assumptions, market development assumptions, I'm curious what has proven to be a huge 'aha' for you that has helped you all take the business to where it's going now?
David Wallace (32:56):
Yeah, I mean I think probably this most surprising thing is from the sales side. Like I said, we anticipated that every farmer's local dealer would be interested in carrying something that's an easy sell, that there's clear ROI on, and that's just not the case. A lot of dealers, especially with technology products, they worry that there's going to be support burden. They worry that they're going to have to actually go out and do outbound sales, which is not something they like to do anymore. And it's also just not a big ticket item.
(33:28):
They want to go out and sell the John Deere 8R series tractor, which is going to be a quarter of a million dollars and get them a really nice paycheck, not the little Farm HQ boxes, which is going to give them four or 500 bucks a pop. So that's one side. The other side is we've been really surprised by how many folks are willing to be early adopters of a new technology on their farms just from seeing an ad on Facebook or hearing about us on the radio somewhere. So that's pretty cool.
Cody Simms (33:58):
And how much of that do you think is being driven by generational change of people on the farm? I don't know how old you are, but whatever. You're a younger guy and you've moved back to your family farm and started working with your dad on it. And you've got a whole generation of baby boomers who are hitting retirement age and younger kids and grandkids who are coming of age. Many of them aren't continuing to live in small farming communities, they're moving to bigger hubs in whatever state they live in. Maybe not huge cities but larger cities. But I'm sure there's a decent amount of generational change that's happening on these local family farms as well. And I'm curious how your sales conversations are reflecting that also.
David Wallace (34:44):
There is a good amount of generational change and we have a handful of farms that are led by guys my age and younger, but for the most part, I don't think there's enough of that happening, to be honest. I think that it is increasingly difficult to get my generation to come back and stay on the farm. And the fact that I've had to leave the farm to focus on this company is a prime example of that. So that said, the modern farmer, he's my dad's age or older, he has a smartphone that he knows how to use. He or she is probably not super interested in the super high tech data platform, which it seems to be where a lot of the development in ag-tech is going these days. Everyone wants to own all the data and be the platform where everybody's going to look at all the layers of data.
(35:35):
What they are interested in is something that gives them control or a really insightful look at something specific on their farm. And so that's what we're trying to focus on. And then this is just anecdotal, but I have this guy, Sam, who's a customer out in Michigan. He has one of our devices and during the season he calls me once a week and we just talk through a question he has or maybe something isn't working right or maybe he just wants a recommendation on something that I probably don't even know about. But it's fun to talk to him because I get the direct feedback from somebody who's older and is really trying their best to keep their farm up to date with the latest tech. And so that's fun that we get to have those discussions with people.
Cody Simms (36:21):
That's awesome. No, nothing better than talking to your users for sure in terms of learning what's going on with your product.
David Wallace (36:27):
Yeah, sometimes talking, sometimes yelling. Depends on how their day's going.
Cody Simms (36:33):
Well, and David, you all recently announced a seed round, I believe led by Lowercarbon. How did you make the decision to try to go the venture route for scale?
David Wallace (36:44):
It was pretty clear that we were going to need to do that. Building an actual hardware product, a cellular connected hardware product, and being able to manufacture that at scale is not a leap that we could have made without some significant investment. And so we recognized, after building the first for 50 devices in the garage, that we weren't going to be able to scale it without a significant additional investment. And so that's when I went out and started pitching and ultimately met with Lowercarbon and it was a great fit for us. They saw our mission and saw what we were able to achieve on in terms of water savings and so it just ended up being a really good fit. And yeah, it's been great.
Cody Simms (37:26):
And what do you typically achieve in terms of water savings? Is there anything that you're able to share in terms of data?
David Wallace (37:32):
Yeah, I mean, I'm working on it right now, looking at the metrics for this last year. So there are a couple of pieces to this, but I'll just give you the high level average. So for an irrigation reel that has automatic pump shutdown enabled, we're able to achieve about 450,000 gallons of water savings each season. So I wish I had a quick comparison for what that means, but it's something... It's more than any one person is going to use in their lifetime. Definitely. Yeah. So it saves about 1.7 acre feet per system that you install per season. So it's pretty significant. It's one acre of water, one foot deep.
Cody Simms (38:15):
Oh my goodness. Wow.
David Wallace (38:17):
Yeah, so the Colorado River I think has an annual flow of 21 million acre feet, something like that. I'm probably going to get that wrong. But overall it's, I believe about a 10% reduction just from installing our device. You can increase the efficiency of your system by 10%. And then what I'm surprised to see this year is that there are actually, I don't want to say behavioral, but cultural practice changes that also are correlated with usage of our system.
(38:46):
And so between customers who use our system with the automatic shutdown feature enabled and those who did not, we reduced their water consumption by 22%. So, again, I'm cautious there to say, not that we cause it, but that it's correlated with, because I can't eliminate any biases that are inherent in that.
Cody Simms (39:05):
And I'm guessing also there's some other positive behavioral/cultural changes that happen, such as if you don't have to drive around to all of these different irrigation pumps every day, you can on your phone, turn them on to happen early in the morning when it's less hot out and you're getting less evaporation, et cetera. So just generally speaking, you could probably also use water more effectively, even water that you're not counting because it's already making its way out of the hoses, but it's actually being absorbed into the ground more effectively.
David Wallace (39:39):
Definitely. Yep.
Cody Simms (39:40):
David, what didn't I ask that you think people should know about what you're building or the problem set in general?
David Wallace (39:47):
Yeah, I mean, that's tough to say. It's been interesting to try to start a company in this space because the irrigation control market is really dominated by a few pretty large players, and there's a lot of consolidation that happens pretty frequently. I think that we're building a pretty innovative product here, and I think it's better than what is in the market. But yeah, no, I guess that's the only thing that I didn't touch on is what the industry looks like. And so for us, we're definitely a little guy trying to be disruptive.
Cody Simms (40:22):
Maybe take a minute and spell out how is your product different than what's the incumbent's solution in the market.
David Wallace (40:28):
Yeah, I mean, what I see out there is a lot of... The big irrigation control systems are tailored primarily to either drip irrigation. So Netafim is a big player in that space. They really automate drip irrigation well for things like greenhouses and even small outdoor farms. And then in the center pivot space, and even solid set sprinkler space, there are a few key players, primarily Valley Irrigation. They make a platform called AgSense that's kind of becoming the industry standard in pivots. And then there's a couple of others, but in general it seems that they are really trying to get broad market dominance by building products that have the ability to integrate with a huge variety of things.
(41:18):
And in doing so, they've created these systems that have way too many inputs for what the common farmer needs and just too many bells and whistles. And ultimately it's quite confusing. And so what I hear from a lot of farmers is they want something dead simple, and we're playing around with the tagline which is, "As simple as the dirt you're watering." So something super simple and something that doesn't have a lot of things that they don't need. And so that's really what we're focusing on and we're trying to focus on building a clean and simple user interface that ties into that and makes it easy for them to control and monitor their equipment.
Cody Simms (41:54):
I super appreciate you coming on today, and I learned a ton about what value props are resonating with farmers today as it relates to water. And I just feel like this is going to continue to be such a crucial issue in terms of where climate change actually meets reality for all of us. In terms of how we eat and how we continue to have access to fresh clean water.
(42:14):
So David, thanks a million for coming on and if there's anything any listeners can do to be helpful, I don't know if you have any key roles you're seeking or looking for other things, but definitely take a minute to tell us about that.
David Wallace (42:28):
Yeah, we are hiring for boots on the ground sales in key geographies. We're also looking for folks to lead our digital marketing efforts internally, and then we're always looking for good engineers for everything from firmware to front end user interfaces. So check out our website, look at our careers page, and if you see something that piques your interest, send us a message.
Cody Simms (42:51):
David, thanks so much for your time today.
David Wallace (42:53):
Thank you, Cody. It's been great.
Jason Jacobs (42:55):
Thanks again for joining us on My Climate Journey podcast
Cody Simms (42:59):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity. To do this, we focus on three main pillars; content, like this podcast and our weekly newsletter, capital, to fund companies that are working to address climate change and our member community, to bring people together as Yen described earlier.
Jason Jacobs (43:21):
If you'd like to learn more about MCJ Collective, visit us at dub dub dub .mcjcollective.com. And if you have guest suggestions, feel free to let us know on Twitter @mcjpod.
Cody Simms (43:36):
Thanks and see you next episode.