For tech firms, the customer isn’t always right
Is it easier to pitch a product that costs $500 — or $500,000?
For many tech companies in Boston, the answer often is the latter.
That’s because coded deep into this city’s entrepreneurial DNA is an understanding of how new technologies can solve problems for corporate customers, and an ability to sell to those customers.
Getting shoppers to purchase something on the shelves of Best Buy, or the digital aisles of Amazon? That’s a different story.
“Consumer [tech] just seems dead — there’s not much happening here,” says Krishna Gupta, a cofounder of Romulus Partners, a Boston venture capital firm. Gupta says that when Romulus was founded nine years ago, it divided its investing evenly between startups targeting consumers and those targeting businesses. These days, it’s tilted much more in favor of ventures like Cohealo, which helps large hospital systems make better use of expensive operating room gear.
One of the region’s best-funded startups is Desktop Metal of Burlington, which has raised $97 million since it was founded in October 2015. It’s designing a 3-D printer that will be able to crank out metal parts, aiming for a spring launch. Founder Ric Fulop says much of the early media hype about 3-D printing focused on the idea that every consumer might want one in the den or the basement, to spit out replacement blazer buttons or design custom toys. That didn’t turn out to be true — even though you can now buy a Chinese-made 3-D printer for about $300.
“Consumer 3-D printing is still growing fast,” Fulop says, “but you’re not going to use it to make functional parts.” He’s targeting aerospace, medical, and automotive companies — BMW has put money into the startup — that actually want to make things they can put into a prototype or finished product. “This is something for professional engineers.” While the price hasn’t been set, Fulop says the objective is to create something that is “smaller, cheaper, and faster” than current approaches to making metal parts.
At the Cambridge startup Elemental Machines, the focus is on using technology to collect a kind of data many companies don’t gather today — information about the conditions inside a laboratory. If there’s too much of a change in temperature, founder Sridhar Iyengar says, it can ruin an experiment that costs thousands of dollars, or a week’s worth of time, to run. The company sells sensors and software that can send alerts about important changes to a scientist’s smartphone.
Iyengar’s last company, Misfit, sold wearable fitness trackers, competing with Fitbit. “I probably wouldn’t start another consumer-focused company,” he says.
Why? “With consumers, most of your revenue comes in the fourth quarter, so everything hinges on doing well in the Christmas season,” Iyengar says. “If consumers don’t like what you’re doing, they go to social media and bash you. That doesn’t happen as much with enterprise customers.” Plus, he adds, consumer tastes change so rapidly that “you build product with the intention that next year, you’ll change it just to do something new.” By aiming at businesses, Iyengar says, “We expect our product to last five or 10 or 15 years.”
And that’s from someone who was successful with a consumer tech company — Misfit was acquired by the watchmaker Fossil Group in 2015. The price tag for the four-year-old startup? $260 million.
One of the most successful consumer tech companies around these parts is iRobot, the Bedford company that last year sold $655 million worth of home cleaning robots. Others hope to follow suit: Franklin Robotics is designing a robot to weed gardens, and Jibo is working on a countertop concierge that will keep tabs on a family’s schedule and facilitate video chats. But keeping the price reasonable is a challenge, especially in the early days when factories aren’t yet producing millions. (Jibo’s last published price was $750, up from $500; the website no longer lists one.)
Clara Vu used to work for iRobot and now is vice president of engineering at Veo Robotics, a Cambridge company that is designing a system that will let industrial robots “see” what’s around them. The goal? To allow humans to work safely alongside today’s big, quick, and dangerous robots — which typically operate inside steel cages on factory floors. “We’re making the system more intelligent,” she says, “adding eyes and a brain to a robotic arm that companies already are buying.”
Certain tasks in a warehouse or factory, chief executive Patrick Sobalvarro explains, are better performed by humans — like replenishing parts in a bin or inspecting quality. But because humans and big robots have to be kept separate, “companies wind up automating things that people are actually better at doing,” Sobalvarro says.
To demonstrate, Vu gets up close to a robotic arm that is bolted to the floor of Veo’s office. It’s taller than she is, and it moves fast. Three cameras positioned around the room — originally made by Microsoft to sense a video gamer’s movements while playing with an Xbox — keep track of where Vu is as she grabs a freezer door and hands it to the robot. The robot swivels over to a refrigerator, and perfectly positions the freezer door. Then Vu grabs a tool to bolt the door in place while her robot assistant holds it.
“We call this dynamic speed and separation monitoring,” Sobalvarro says. “It changes how fast the robot can go and where it’s allowed to go, based on where Clara is.”
About $34 billion worth of industrial robots were sold in 2016, according to the market research firm Tractica. By contrast, the consumer robotics business is about one-tenth that.
“When consumers are looking at new products, they’re always thinking, ‘Do I need this?’ ” Sobalvarro says. “We have these very sophisticated customers who understand the issues around making an assembly line more productive, or how much it costs them if they run into quality problems. It’s very different. They say, ‘If you could solve this problem for under $500,000, you’ve got a sale.’ ”
“Consumer tends to be less popular in this town, unfortunately,” says Bijan Sabet, an investor at Spark Capital; the Boston VC firm has invested in social media startups like Twitter and Tumblr, as well as Wayfair, a Boston home furnishings site. But Sabet says he’s “optimistic we will see more consumer innovation.”
What could shift the status quo is simple: more founders with experience at consumer tech companies like iRobot, TripAdvisor, or Bose starting their own businesses, and more investors willing to back them.