Ag Tech Talk Podcast: Traction Ag’s Cloud-based Accounting Software
4 January 2023 
The role of the farmer is deeply embedded in the human psyche. Books and movies often convey the slow-talking grower as an uneducated yokel wearing a pair of dirty overalls. Sure, he knows how to grow wheat and corn, but put him in front of a computer and he’s lost. That depiction couldn’t be further from the truth. Many farmers and the operations they run embrace technology, both in the field and in the office. Ian Harley, Co-founder and CEO of Traction Ag, the maker of a cloud-based accounting software designed specifically for the agriculture community, knows many growers are among the first to employ tech tools. In this Ag Tech Talk podcast, Harley talks about the company’s recent raising of $3 million in seed funding, the importance of agriculture-specific accounting software, and how consolidation in the industry could affect financials.
Podcast Transcript:
AgriBusiness Global: First of all, why don’t we just start with who you are, and tell us a little bit about the company. Give us your 30-second elevator speech.
Ian Harley: Yes, my name is Ian Harley. I’m aCEO of Traction Ag. We started the company, along with two co-founders in the spring of 2020. We all have a 25-year history in agtech companies like Farmworks, Trimble and Granular are all in our past. So, we’ve been servicing farmers across the world, really, with technology to better manage their business.
ABG: Where are you located?
IH: Auburn, Indiana, which is the northeast corner of Indiana. We have a team of about eight here amongst a total team currently of sixteen.
ABG: All right. You mentioned some seed funding. Can you talk a little bit about what you announced today?
IH: The company was originally founded and supported by what you call a friends and family round. So, it was really the team, and about eight or nine grower investors who chose to invest in Traction and get us started, and we’re very pleased with that.
What this round now is to further expand the capital availability. So, we’ve partnered with Hageman (Group), who are a farm based private family office from Indianapolis. Allos Ventures, who are a well-respected, long-term tech investor again, based in Indianapolis and Elevate Ventures. And the capital they’ve provided is really to grow and expand both the features and functionality of the application and our customer sales and success team, because we see the company really being of two pillars, the technology, of course, being very important, but it’s also important to be very engaged with your customer base and provide that sales and support success help, so that they get the best value from the application.
ABG: So, specifically, what we’re talking about here is accounting software that is focused on agriculture. Why that specific? Why is that important? Why can’t you just grab something off the shelf and use that as accounting software?
IH: Our focus is row crop producers in the Midwest, and typically that kind of mid-range 2,000 to 5,000 acres. We’re aspirational to service that complete spectrum of growers, but our initial release was a cash accounting application, and that was appropriate for that scale of farmer. We’ve since extended the functionality, and by this year-end we’ll have full accrual accounting with things like market value, balance sheet, and accounts payable. The really big answer to your question is, there’s a great deal of complexity in farm accounting.
It’s often a multi-year profit center business, so you can imagine a growing crop that’s carried over a year end. So, you have growing crop inventory at year end. You have farms to crop inventory at year end, and what’s important is reconciling all of that accounting data back to your job costing your fuel-profit analysis, so that you can clearly identify your revenue and expenses per unit of production per bushel, typically in row crop or per acre, per crop, and really drill down on that information at a field level, but have it all reconciled back to your actual accounting transactions. So, at the same time, you’re tracking your entity, equity, balance sheet, so that you can manage your business for the long term.
ABG: So, an off-the-shelf solution is not able to do some of these things.
IH: A non-ag-specific accounting application does not have the relationship between operational activity and financial activity to build out that fuel-profit center analysis. That’s really the key to understanding your costs production, understanding your margin per bushel. But there are specifics in agriculture. Often farmers have multiple entities. They have multiple businesses that all interact. They can be land-owning entities or contract-hire entities or their core farming operation entity And they want to account for all of those as individual entities, but often they also want to aggregate that balance sheet an income statement together so they can reflect the performance of their entire farming operation. And Traction allows that multi-entity, support, and is unique in the modern web application and delivering that farm specific functionality. Also, the key there managing that harvested and supply inventory balances throughout the year, in order that your average costs for those supplies are correctly reflected on your fuel profit center. And equally when you sell your crop that average cost of harvested sale is also appropriately reflected.
There’s also industry, specifics, like prepaid, for example, which is kind of unique to agriculture, where farmers will prepay for supplies. And again, that’s often not easy to track in a non-ag-specific accounting application. And also on the payroll side, we have fully integrated digital payroll, which supports all the at specific requirements, like (Form) 943 tax submission, for example.
ABG: Can you talk about how that changing (aging) demographic fits into your operation, your software solution?
IH: We see predictions of 25% to 40% consolidation and rural crop producers in the midwest over the next five to 10 years. Now it may not be as aggressive as that, but there’s no doubt that the grower who sees the financial management of their business as a competitive advantage where they can make better decisions about land that they rent, share crop agreements that they enter into, machinery, purchase decisions. We believe that those growers are planning for the future, and really setting up their farms for successful succession ultimately to the next generation, which is often the goal of a farming business.
Traction aims to support that effective financial management of your farming operation, and the demographic shift is such that the next generation of growers will want the connectivity. They’ll want an application that’s engaged with the ag ecosystem. So, rather than having to manually key data, we have integrations for John Deer and Climate currently to get operational data.
We pull in all your bank data so that you’re getting all your bank transactions integrated into Traction, and then the future, those integrations will become increasingly important in other areas – vendor invoices, scale tickets for harvest delivery. And again. These are all ag specifics will focus on providing that relationship with multiple partners. That’s a key requirement of the modern grower.
ABG: What can an ag specific software accounting affect growers’ crop input plans?
IH: Ultimately, we aim to deliver whole crop planning and budgeting. So, the concept of being able to identify the acreages for the future in terms of crop mix, identify the plans and programs that you’ve previously used, and project out all of that supply inventory requirement, project out your purchasing needs, and project out your budget for the coming year, so you can identify that right through integrated with your accounting, so that your working capital is identifiable, the working capital requirement. And you’re also going to plan in your prepaid, of course, because that can be in a very effective method of purchasing in advance effectively those crop inputs. So it’s really throughout the growing cycle Traction supports the grower in making good decisions about those input purchase activities.
ABG: This is a cloud-based solution. Everything is moving to the cloud. Why is that helpful?
IH: Obviously, access on any connected device. So, we have an app running on phones to capture transaction details. We can create field records on an iPad user interface and all the accounting in a web application. So really, it’s that availability, and it encourages the ability for all the members of a farming operation team to engage with Traction at appropriate points.
Again, it’s easier to claim the data that way. So, individuals who are responsible for field operations collect that data. The accounting data can be entered as you charge your credit card at your local equipment supply store. You can take a picture of the receipt, and that’ll be captured into Traction from your phone. Back in the office you can synchronize with your bank or add transactions manually and claim all that account register information.
It’s very much a team environment that you can deliver with a web application. And the second part of the advantage really is about that connectivity. It’s very hard to maintain in this modern world effective connectivity with your partners if you’re not truly a web application. So, whether it’s collecting data from John Deer or getting invoice data from a supplier or capturing your bank transactional data, a web interface just makes that functionality so much easier to deliver.
ABG: Imagine on a back end, too, it’s easier upgrade the system?
IH: We aim for a kind of monthly cadence of new feature releases. So we’re about 30 months (add interview month) into our engineering schedule, and we’ve delivered a lot of functionality – full accrual accounting, payroll, and integrated operational activity have been integrated into Traction. But we continue to have features that we aspire to deliver. So next year, we’re working on a whole suite of operational functionality around that whole crop planning and budgeting tank mixes, split-crops, double crops, to make sure the uniqueness of agricultural accounting is effectively managed in Traction.
ABG: You talked about this a little bit earlier in our conversation. The company has raised $3 million (US). How is that money going to be used?
IH: To build out our engineering and product team. We’re currently about eight in that team. We really want to double that over the next 12 to 18 months, so we can accelerate the functionality and the features that traction has available in its application. So, right from the core, there is full accrual accounting. But there’s a a series of add-ons that can enhance that deliverable whether it’s grain contract contracting, for example, or grain marketing and functionality enhancements to the operational site in terms of reporting, working with your crop insurance provider, so you can digitally report that information. (and to) the various government agencies, if you require digital submission, that’s something we’re looking at delivering in the future. There’s a whole host of ideas ahead of us.
ABG: There are certainly lots of things that growers must deal with regulatory issues, certainly, there can be crop inputs that they purchase. Is this going to ever move beyond just accounting software into management and operations. You have all this data, all this information. Is there advice involved in any way, shape, or form? Is it strictly just a: Here’s the information that you figure out what to do with it?
IH: That’s something we didn’t really touch on when we talked about the volume of a web application. But obviously that responsibility for growers’ data lies entirely with Traction, and that can be very easy for them. Then they don’t have to worry about backups or installing on separate computers, or making sure that their data is valid, and all of that’s handled by us. But it’s also very much the strategy of Traction that we’re entirely dedicated to servicing our growing customers. So, we don’t today have any alternative business model for the use of that data. The only reason we click collect your data is to provide the functionality and the service to the grower.
But that’s not to say in the future that perhaps growers will look to us to provide some kind of benchmarking information. So, what is the average spend on fungicide and corn production in Illinois, for example, that’s potentially something that we can help the growers make good decisions again by comparing those with a peer group in a state or in an area with regards to an aspect of their operational management. So, I mean, we talk about currency software. We very much want to lead with that. We see that as a core requirement you have to manage your balance sheet and your income statement, both initially for your taxes, but more effectively to manage your relationship with your lenders, for example, to give you that clear understanding of the financial performance of your business. But we already, today, have that fully integrated with the operational activity. Capturing all those field record details, so that we’re costing out each activity in the field. That’s all part of Traction today. What we’re working towards is greater functionality with regards to management of that activity. So work orders, for example, where a central management team can deliver and manage a a group of operators effectively using a web application to track their activities and collect information from those operators.
There’s certainly functionality that enhancements that we can look at there.
ABG: Where is this software available?
IH: Currently, we’re focused on row crop production in the Midwest of the USA. You gather from my accent. I’m originally from outside of the US. But very focused on the US, today. That’s not to say we don’t have aspirations. Our previous company was actually my responsibility to do the business development outside of the Americas, and we sold our application in 25 countries in 20 different languages. We have aspirations to grow. But you have to have a core focus initially, and the Midwest is it for us.
ABG: How many customers do you have right now.
IH: We’ve been tripling our customer base year on year for 2022 and we have to do that again for 2023. For us it’s more about customer value – better to have a very focused group of customers that are really getting volume from Traction and seeing the impact that it has on their business management. We obviously are aspirational to scale. But we’re going to scale in an appropriate way. This initial round of funding is to build out the full set of features and functionality. We see a modern progressive row crop producer need, and then we will look to enhance our sales and success team in the future. So, as we grow rapidly, we always maintain that same service level with our growing customer base.
ABG: What else do we need to know?
IH: That’s a great question. I think the key thing for us in this investment round is the partnerships we’ve forged – the Hageman Group. Obviously, Shane Hageman is a business leader in Indianapolis, managing a family office, but also managing a portfolio of our cultural investments across the USA for third parties, and also being a farmer himself. We have Don Aquilano, (co-founder and managing director of Allos Ventures) joining our board, He’s a very experienced tech investor with a great history of rapidly scaling tech companies successfully in software as a service business model, which is what Traction is. So I’m just looking to draw on that expertise. And that added rigor and intellect on our board to really continue to grow Traction.
ABG: How did those relationships develop?
IH: I’ve had a large number of people reach out to me interested in the mission that Traction are engaged in, and they’ve identified the uniqueness of that accounting and operational combination, and see it in conjunction with the payroll integration as a really valuable software tool for agricultural producers in the Midwest. So, really, we’ve been as it were, courting our investors, and we felt that Allos, Hageman, and Elevate were just a great combination for traction, and to give us that management expertise and the solid capital base. But they were engaged for the long term. Agriculture is a generational business. We don’t measure our success in months or quarters even, but often in generational success. And that’s the perspective Traction has, and also with the perspective we needed our investors to have.
ABG: How long did this process take? From the time you said, ‘we want to start this investment round’ to when you send out a press release, talking about the seed funding?
IH: It really has been an iterative process from the time we started with our initial grower investors, who we were very grateful for, and the team who chose to invest and as we started to scale the company we recognized that the opportunity ahead of us was even bigger than we’d initially plan.
So, I guess it’s been about eight months. We’ve been looking to capitalize the company appropriately to scale for that growth opportunity.
ABG: Any other thoughts, anything that we didn’t address that you think will be important for people now?
IH: We’re very keen to establish partnerships with all of those who engage in the network of interactions that any grower has. If any of your audience are engaged with simplifying a farmer’s life with regards to his transactional relationship with your business, Traction can be a partner.
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