Scaling Ethically in the Mushroom Industry

Where do you draw the line between building a profitable business and staying true to your ethics? This question confronts every founder. In the mushroom industry, where margins are thin and quality is paramount, it’s especially pressing. Doing the right thing feels rewarding—until it costs you a client, a contract, or impacts your bottom line. The reality is this: Building with integrity is challenging. Scaling with integrity is even tougher.

The Pressure to Scale (and the Corners That Get Cut)

Adam DeMartino, co-founder of Smallhold, captured this dilemma well in his post “You Can’t Eat Technology.” Smallhold grew rapidly into a nationally recognized mushroom brand—raising over $58 million and creating a category-defining presence in major grocery chains. Yet, as DeMartino admits, the company never turned a profit and lost over a dollar on every package sold. Why? Because it tried to frame itself as a tech company to attract venture capital, rather than anchoring its identity in the slower, messier reality of farming.

Under pressure from investors, Smallhold expanded fast, built massive infrastructure, and launched seven products in under three years. But the fundamentals—unit economics, operational readiness, and long-term vision—weren’t there. Instead of stabilizing the burn and adjusting the model, Smallhold played the tech game. And like many ag-tech stories, the financial returns never materialized. Eventually, a restructuring team stepped in and dismantled key parts of the business—including farm operations, living wages, and sustainable packaging—undermining its core values.

DeMartino’s reflection offers a powerful warning: if you're building a mushroom business, don’t let investor expectations dictate your operational tempo. Make decisions that align with biological reality, team well-being, and product integrity—not speculative return curves.

Once you achieve profitability, the pressure mounts. How do we grow? How do we increase margins? How do we keep investors satisfied? Many startups, especially those with shareholders, must meet expectations for constant growth. This usually translates to one primary approach: cutting costs. However, there’s a significant risk involved.

Cutting costs can lead to:

• Quality declines, resulting in product failures and safety issues.

• Misleading claims, risking brand damage and false advertising.

• Equipment shortcuts, causing potential contamination or crop loss.

• Labor reductions, compromising the people essential to your operations.

Margins are crucial, but cutting corners can jeopardize your business faster than a bad harvest. For mushroom businesses, which depend on consistency, cleanliness, and labor-intensive processes, cutting costs without foresight can be the death knell. The lure of larger margins or faster timelines should never outweigh the need for structural integrity, especially when safety, trust, and long-term viability are on the line.

The Mushroom Farm Reality Check

Mushroom farms face unique challenges that are unlike most other agricultural operations. Like any ag business, they operate on thin margins and face ongoing threats from disease, pests, and contamination. However, mushrooms add a layer of complexity—time is relentless, and delays can destroy yields overnight.

A single lapse in cleanliness or climate control can result in mold, bacteria, or spore contamination, leading to a complete crop failure. These risks intensify as a farm scales. Expansion creates logistical pressure, staffing challenges, and infrastructure gaps. You’ll constantly weigh needs versus wants: "Do we need advanced climate control or will basic ventilation suffice? Should we build a new fruiting chamber or optimize the one we have?"

Ethical scaling forces us to ask: Are we solving for resilience or speed? Are we sacrificing longevity for growth? Cutting corners might offer short-term scalability, but at the risk of long-term collapse.

What Does Ethical Scaling Actually Look Like?

Ethical scaling isn’t glamorous. It’s a grind—a deliberate, sometimes slower growth strategy that aligns profitability with people, planet, and product. It often means making difficult trade-offs:

• Choosing to invest in durable infrastructure that improves conditions over time instead of flashy expansions.

• Prioritizing workforce development through education, fair wages, and inclusion over simply hiring cheaper labor.

• Spending more time validating formulations or new substrates instead of rushing to launch new SKUs.

It also means keeping your brand rooted in reality. You need to resist the temptation of over-marketing your farm or products with vague or inflated claims like "revolutionary growing method," "farm of the future," or "zero-waste" without the data and systems to back them up. These kinds of claims often mimic the tech industry's hype cycle, but farming is rooted in biology, not bravado. Instead of trying to sound futuristic, ethical mushroom farms focus on clarity: educating consumers on why freshness, local sourcing, and clean cultivation matter. They prioritize consistency and trust over novelty. Rather than marketing the next "it" mushroom, they build deep, lasting systems for cultivating high-quality, perishable food responsibly and reliably. Instead, ethical companies focus on clarity: educating consumers, sharing meaningful product data, and explaining why their decisions matter.

Ethical scaling also means investing in the long game. This might look like building redundancy into your supply chain instead of going with the cheapest vendor. Or choosing to spend months validating a new substrate formula to ensure yields and consistency, rather than rushing a new product to market because of trend pressure. It might mean saying no to large-scale contracts if you know you can’t meet demand without compromising standards. That restraint is part of your integrity.

It requires internal alignment, too. Leadership must ensure that the drive to grow doesn’t outpace the systems that keep the business grounded. That means integrating ethics into every layer of the business: from procurement to R&D to hiring practices. For example, are you paying your team living wages and building a company culture of collaboration and ownership? Are your QC teams given the tools, training, and authority they need to stop production if quality is compromised?

True ethical scaling also includes reinvesting in your community. Can you donate surplus to local food banks? Can you share infrastructure—like cold storage or delivery logistics—with nearby producers? These decisions may not show up on a quarterly earnings report, but they build trust, community resilience, and long-term brand loyalty.

Ethical scaling is an act of resistance. It's a decision to prioritize stewardship over speed, resilience over flash, and transparency over short-term wins. And in the mushroom industry—where trust, efficacy, and ecological literacy are still growing—these decisions have ripple effects that extend far beyond the farm.

The outcome of ethical scaling is a company that’s deeply aligned internally—its culture, operations, and mission reinforce each other. It’s also more likely to withstand market shifts, customer scrutiny, and regulatory evolution.

Lessons from the Past (and the Forums)

Beyond community-driven innovation, we now have high-profile cautionary tales. One such example is Smallhold. While they pioneered the national visibility of gourmet mushrooms, their story—chronicled by co-founder Adam DeMartino—reveals the risk of scaling too fast without operational grounding. In trying to appeal to venture capitalists, Smallhold branded itself as a tech-forward operation, prioritizing speed and optics over sustainable growth fundamentals. The result? National distribution and widespread acclaim—but eventual bankruptcy, broken supply chains, and damage to the very category they helped build.

This highlights a crucial lesson: growth must be tied to capacity. Systems must be tested, validated, and resilient before going national. Smallhold’s story proves that when you ignore the pacing required in biological systems and human infrastructure, brand equity and mission integrity collapse quickly. It's not enough to be first or loudest. You have to be ready.

Much of what we know about mushrooms doesn’t come from institutional labs or universities—it comes from forums, experimentation, cultural wisdom, and collective tinkering. Mushroom cultivators are often self-taught, learning from Reddit threads, Discord servers, and obscure papers. The community science culture is powerful but also fractured.

Companies like Monterey Mushrooms and Gourmet Mushrooms Inc. have built empires through patience and practice. Since the 1970s, they've refined their methods without outside capital, quietly iterating their processes, and testing new substrate formulations. Their success shows what’s possible when you grow with discipline rather than hype.

On the flip side, Smallhold is a cautionary tale. VC-backed and heavily marketed, they expanded too quickly without deeply understanding the cultivation process and pitfalls of operating at scale. Their packaging failed to account for moisture loss, which dried out their mushrooms and damaged shelf life. Without experienced mycologists or systems thinking, scaling became collapse.

This underscores the value of time, testing, and operational humility in mushroom cultivation.

The Middle Ground: Scale with Integrity

Scaling with integrity is not about rejecting growth; it’s about defining growth on your own terms. It’s not a binary choice between altruism and ambition. Ethical companies can—and should—be profitable. But they must pursue profits with principles.

Consider what scaling with integrity might include:

• Choosing lower-yielding but sustainable substrates because they support local supply chains and reduce emissions.

• Training your competitors by sharing cultivation tips or operational insights, knowing that a stronger industry helps everyone.

• Publishing full-spectrum COAs or issues on contamination data even if they’re not market-leading, because truth builds long-term brand trust.

Scaling ethically means accepting slower wins, but it also means sleeping well at night. It builds internal cohesion and external loyalty. And that loyalty is your true competitive edge.

Seasonality and Substrate Efficiency

Seasonality in mushroom farming isn’t just about market timing—it’s about aligning your inputs and outputs with environmental and material realities. When you cultivate based on seasonal availability and demand, you reduce waste and improve efficiency.

For instance, using agricultural byproducts from local farms—like straw, grape pomace, or nut hulls—can make your substrate cheaper and more sustainable. But this requires testing. Substrate formulation must be adjusted for lignin, cellulose, hemicellulose content, C:N ratios, porosity, moisture retention, and microbial risk. Different fungi respond better to different substrates—white rot fungi like Pleurotus thrive on cellulose, whereas brown rot fungi might be better suited to lignin-rich material.

Spent substrate doesn’t have to be waste. It can be repurposed for secondary cultivars, composted, or even used in bioreactors for energy generation. These closed-loop systems take time to develop, but the payoffs are massive: lower overhead, better margins, and measurable ecological impact.

Transparent but Smart

Transparency is core to ethical practice—but full openness can backfire. Sharing contamination rates, substrate recipes, and supply chain details exposes your company to risk. Competitors can copy you. Bad actors can twist your data.

So how do you remain transparent without being vulnerable?

It starts with sharing values before formulas. Talk about why you source locally, how you test your products, and what your standards are. Publish lab data but explain what it means. Don’t cherry-pick COAs to make your product look better—this undermines trust, especially with savvy consumers who know how the game works.

The mushroom industry is still defining its standards. COA shopping—where companies send samples to multiple labs and pick the most favorable result—is common. It erodes legitimacy. Instead of hiding behind selectively high numbers, brands should be pushing for third-party verification and cross-lab validation. QR codes linking to real-time batch testing may become a baseline, but only once the industry develops consensus on validated methods for testing beta-glucans, triterpenes, and ergothioneine.

Protecting Worker Health

Mushroom operations are labor-intensive. Unlike row crops or tree fruits, mushrooms require constant care in sterile, controlled environments. This creates physical strain and health risks for workers.

Spores—particularly from mature caps—can cause respiratory issues if inhaled regularly. Poor ventilation or delayed harvesting can expose workers to chronic exposure. Additionally, repetitive movements, lifting heavy bags, and navigating poorly designed grow spaces can lead to musculoskeletal injuries.

Humidity and condensation lead to pooling water, increasing the risk of slips or microbial hazards like Listeria. Grading grow rooms properly, using ergonomic equipment, and managing harvest schedules are crucial for both safety and efficiency.

Beyond physical design, ethical companies must consider emotional safety. Profit-sharing, team training, recognition, and work-life balance increase morale. Workers who feel invested in the mission are more likely to stay, care, and contribute to your long-term success.

Sustainability Beyond the Buzzwords

Regenerative. Organic. Carbon-negative. These words are powerful—but too often, they’re used without substance. Ethical mushroom cultivation means going beyond marketing and actually designing sustainable systems.

Start with inputs: organic is baseline, but don’t stop there. Can you verify no glyphosate in your supply chain, even if the ingredient isn’t certified? Can you trace the farm of origin and confirm ethical growing practices?

Reusable packaging beats recyclable packaging. Upcycled materials—like plastic drums or pallets—have a second life and reduce energy consumption. Closed-loop systems like substrate-to-energy bioreactors not only reduce waste but provide electricity and heat during winter grow cycles.

Localizing your operation reduces emissions. Transporting mushrooms thousands of miles defeats the sustainability claim. If you want to scale nationally, consider building regional hubs to minimize distribution costs and carbon output.

Carbon offsets and certifications are meaningless if your operations are inefficient. A true sustainability plan includes life-cycle analysis, water usage, transportation emissions, and social impact metrics.

Ethics and Genetics

Fungi are some of the most adaptable organisms on Earth. Their genetics evolve quickly, mutate easily, and share genes across species. It’s tempting to try and "own" these organisms through patents—but is that ethical?

Open-source genetics offers a middle ground. If you’ve developed a novel strain, consider licensing it affordably instead of hiding it. Hoarding IP slows down innovation and reinforces inequality in research access. Too often, large corporations bury promising fungal R&D because they can’t monetize it—so years of discovery disappear.

What if those strains made it into the hands of small growers or researchers with different goals? The ROI might not be financial—but it could be medicinal, ecological, or educational. A culture of sharing and cooperative licensing can accelerate progress for the entire sector.

The Heart of Ethical Business

Ethical companies don’t just do the right thing when watched—they do it when no one is looking. In the mushroom world, that includes sourcing, transparency, product safety, and customer empathy.

Some companies spend years and millions of dollars developing products, new tools, and IP that has market potential. But when all is said and done, it sometimes falls flat because there isn't a market yet and developing a market can be more costly than producing the product. This is when shareholders conduct a cost analysis to understand the ROI of their R&D work. If it's not viable, it gets sent to the grave to be buried and never furthered by other companies or researchers. Is it ethical to keep research secret after so many years of progress and prevent others from utilizing it?

But what about consumer goods? Say your product is targeted toward immunocompromised individuals. Your microbiological profile might pass legal standards—but is it safe enough for your target audience? Are you building testing thresholds around your most vulnerable users?

Accountability goes beyond compliance. Ethical growers share their sourcing, are honest about contamination risks, and stay consistent in their marketing claims. Consumers can smell a lie—don’t sell hope, sell truth.

Investor Pressure vs. Founder Vision

How do you remain ethical when investors want 10x returns in 12 months?

It starts with founder clarity. Are you building to flip—or building to last? Not all businesses need to become mega-corporations. In fact, most shouldn't.

Redefine what success looks like. If your farm supports ten families, feeds hundreds, and stays resilient for decades, that’s success. If your systems improve over time—lower contamination, higher yields, less waste—that’s growth.

Economic sustainability should mean stability, not endless expansion. The idea that a good economy grows forever is flawed. A healthy system is one that adapts, not explodes. Mushroom companies should be judged not only by revenue, but by ecological impact, employee well-being, and community contribution.

Golden oyster mushrooms invading Midwest ecosystems is a cautionary tale. Choosing easy-to-grow, high-yield species without considering ecological impact can backfire. Use native species when possible. Think long-term. Think holistically.

Final Thoughts

Ethics and profits aren’t mutually exclusive. They’re just rarely pursued in tandem. But they should be.

Scaling ethically is about saying: “I know I could grow faster, but I’d rather grow better.”

It means choosing people over shortcuts, quality over quantity, and truth over flash. It means resisting greenwashing and virtue signaling in favor of real metrics, tested methods, and transparent practices.

If we can scale smarter—together—the mushroom industry can become not just bigger, but better. Let’s set the standard. Let’s build the future we want to grow into.