Why one Boston home security startup caught on and another didn’t
This is a tale of two startups: One was founded in a garden-level Beacon Hill apartment, the other at various Au Bon Pain and Panera restaurants in the western ’burbs. One had a Harvard Business School pedigree, the other MIT.
Both focused on developing new products for home security and were run by novice CEOs. Both successfully attracted funding from investors.
But one startup was acquired in June in a deal that valued it at $1 billion, and the other no longer exists — the company was dissolved in April, and its former chief executive landed another job in May.
The first firm, SimpliSafe, was founded in 2006 by Chad and Eleanor Laurans, a husband and wife team, while they were earning degrees at Harvard Business School. They’d observed that there weren’t many home security companies focusing on apartment dwellers; pretty much all of the entrenched players wanted homeowners as customers who could be locked into lucrative multiyear contracts.
Chad Laurans told me in 2015 that when he would go to security industry trade shows, “Everyone thought it was nuts not to have customers sign a contract.” But he and Eleanor ignored the conventional wisdom and designed a completely wireless security system that a buyer could install. If the customers preferred, they could just have the alarm go off when a door or window was opened, but SimpliSafe would also offer an optional subscription-based monitoring service that could check for false alarms and call the police if necessary.
For the first few years of the company’s life, Eleanor worked a day job at a consulting firm so that Chad could design the product and shepherd it to market. (Eleanor is now the chief financial officer of the Boston Public Schools.) He didn’t take a salary for the first three years. The first SimpliSafe security system went on the market in 2009.
“We launched the company right into the Great Recession,” Chad Laurans recalled in a conversation earlier this month. “There were not a lot of people banging on the door to invest.” Despite the lack of interest, Laurans did manage to raise a small round from friends, family members, and individual “angel investors” to keep the company going.
In those early days, the big cellular operators didn’t have much interest in collaborating with tiny startups like SimpliSafe, Laurans recalls. But he wanted a wireless network to enable his security systems to report break-ins without being plugged into a landline, so he decided to build the product to connect to the older two-way paging network.
The problem? Those networks “have much more limited coverage,” Laurans says. “Sometimes we’d sell a system to someone, but then we wouldn’t be able to serve them. It was a frustrating experience for the customer.” Network outages were also common. “It really did feel like banging our heads against the wall,” Laurans says.
Eventually, the company began to put deals in place with the cellular operators, which provided more reliable connectivity — but that meant replacing all of the base stations SimpliSafe had sold to customers.
The second company — the one with the MIT pedigree — designed an Internet-connected LED light bulb. But this bulb doubled as a security system. To deter burglars, you could set it to turn lights on and off while you were away, or respond to the ring of the doorbell by switching on the light in an upstairs bedroom. The lights also had batteries inside them, so they’d work even if the home’s power was out.
The company was called BeON Home, and it got off to a fast start. Just a year after being founded, it collected $106,000 on the funding site Kickstarter from customers eager to get their hands on the bulbs. (A set of three bulbs was priced at $199.) BeON got generally positive press from websites like TechCrunch and Consumer Reports; in a 2015 column, I dubbed it one of the 50 most promising startups in Boston.
By the end of 2016, cofounder Alexei Erchak says, the company was moving about $100,000 a month in product, mainly through Amazon and its own website. “It was great,” Erchak says. The company graduated from working in cafes and opened an office in Cambridge.
But BeON had launched a cool product, and SimpliSafe had built a business with recurring revenues. SimpliSafe grew from 200,000 customers in 2013 to more than 2 million today — and many of those customers do decide to shell out for the monthly monitoring service, which starts at about $15.
SimpliSafe, Ben Einstein observes, “was tapping into a very clear market — security systems — and a very real pain point — being held captive by the likes of ADT,” one of the big home security players.
In contrast, Einstein says, BeON “was trying to create a new product category,” the intelligent light bulb, which could play a role in home security or simply turn on the lights on the porch when the sun went down. That latter kind of company, he says, “tends to be much more complex to build, market, and scale.” (Einstein runs Bolt, a Boston and San Francisco venture capital firm that invests in consumer electronics startups, but didn’t put money into either SimpliSafe or BeON.)
BeON stopped selling its intelligent bulbs last year but was still taking meetings with investors in early 2018, hoping to raise the money to enable it to design a wider range of products.
That didn’t pan out, and around the time that SimpliSafe was negotiating a deal to sell a majority stake to Hellman & Friedman, a California private equity firm, Erchak was shutting down BeON Home.
The SimpliSafe deal was announced late last month. It puts a $1 billion valuation on the 12-year-old company, which has about 600 employees.
Erchak says he has “a tremendous amount of respect for Chad and what he has done with SimpliSafe.” One key lesson: “They understood their customers, and how they think. They just focused on making the entire product simple and easy.”