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ROBOTICS AS A BUSINESS: WHY BUILDING THE BILLION DOLLAR ROBOTICS COMPANY IS HARDER THAN YOU THINK

We’ve all seen our fair share of billion dollar companies in recent years. Brands like Twitter, Uber, Airbnb, and Groupon have all taken the market by storm and met with resounding success based on a felt consumer need – in areas as diverse as transportation, accommodations, food and events coupons, and social media. And so that’s why many prognosticators and trend followers have been surprised to see that #robotics hasn’t offered the equivalent. For quite some time now speculation has abounded as to when robots might go mainstream. In fact, back at the beginning of 2007, Bill Gates famously declared robots as the “next big thing” and that the robotics industry was at the same place as the PC market in the late 70s – just ready to take off.

Robotics have been big for sure – in the auto industry, in healthcare, in Japan!  Robots have generated tons of interest in recent years through television, magazines, and news outlets. And with the rapid advances in artificial intelligence and machine learning and new virtual assistants like Siri or the personal autonomous device, Robotbase, it might be safe to assume that robots are at our doorsteps. But we’re still waiting patiently for the consumer market to take off. Why has this market taken so long to unfold? What are the challenges within the industry from an investment perspective? Will there be a Google or Apple of the robotics world? And if so, when? These are some of the compelling questions that were addressed by Shahin Farshchi, venture partner at Lux Capital Management, during a talk on March 12, 2015  at Silicon Valley ### Center.

The fireside discussion provided the audience with an opportunity to go behind the scenes for an insider perspective on the latest market trends and thinking from someone with a deep knowledge of the robotics industry. As a Ph.D. in electrical engineering as well as a Silicon Valley venture capitalist, Mr. Farshchi is uniquely qualified to share his perspective on the challenges and solutions behind investments in the robotics space – and hardware in general. The following points represent the biggest takeaways on why robotics remains one of the most challenging, fascinating, and lucrative technology markets at this time.

1. Robotics is still in the early stages of development

Mr. Farshchi pointed out that robotics, in its current form, is still a very nascent field.  Now in light of all the technological advancement we’ve seen in recent years, this might seem counter-intuitive. But robotics is unique in that it’s a very interdisciplinary field, combining together artificial intelligence, machine learning, mechatronics, manufacturing technology, sensing technology, and actuators together under one roof. Whereas previously these were all discrete fields, robotics combines them together in ways that also create significant challenges in terms of technology, scalability, cost, and efficiency.

2. Don’t focus on the technology as much as the market opportunity

Mr. Farshchi observes there are lots of talented roboticists out there working on compelling technology problems. However, the underlying assumption has usually been that once these challenges are solved then the market opportunity will open up. The challenge Mr. Farshchi is facing right now as a venture capitalist in this space is that these same talented roboticists are making some “very good shiny objects” in terms of innovative technology, but it’s extremely hard to transfer from the shiny object stage to making a business out of it. iRobothas been around since 1990 and was making robots for the military for many years until it saw the commercial opportunity in obstacle detection and vacuum cleaning. Kiva Systems didn’t originally set out to build a one-of-a-kind warehouse robot, but was concerned with a very specific logistics problem relating to cluster robotics. Mr. Farshchi observes that the real challenge is for roboticists to articulate a clear path on how the amazing robots they’re building will be turned into a billion dollar business. The person that comes up with this solution is going to be very rich!

3. Hardware prototyping is just plain “hard”. 

In general, hardware prototyping is very hard to do. The time cycles are long and the money needed to produce a minimum viable product is substantial. Software, on the other hand, is relatively easy. For example, you can bring together four Stanford undergraduates, put them in a room, and have them build a mobile app in less than a week for a minimal amount of money. But the development and production cycles for hardware are much longer and more expensive, and also require a much more diverse set of skills to do right. Another thing that distinguishes hardware from software is metrics. Software applications have a clear set of metrics  in terms of monthly actives, downloads, purchase, and well understood KPIs, which can provide valuable input for venture capitalists looking to invest. But this is not the case for hardware. As an example, there are not that many companies developing “pick and place” robotics for use in assembly lines. So the metrics in this space obviously are not as ubiquitous as with software development.

4. Identity a need

According to Mr. Farshchi, the real secret to success in robotics is to identify a need or a whitespace that has dollars attached to it. You want to find a market niche where people are willing to pay for your product. This doesn’t have to be a bleeding edge technology and you don’t have to spend a ton of money. What is most important is to see what kind of technologies already exist in the market that you can integrate into. The budding robotics startup will want to identify their early adopters and give them an initial proof of concept through which they can create some channels for further engagement. The key strategy here is not to boil the ocean but to minimize what you need to invent. Once you introduce an innovative new robotics device into the hands of your early adopters, you can work with them to see where the best opportunity resides. On the basis of this feedback, you can then affirm your original hypothesis about where the market is heading and scale up from there.

5. Robotics tools and design are ripe for innovation

A segment of the robotics industry that is ripe with opportunity is the area of infrastructure. There is currently no tool that can bring everything together and help address the enormous cost and scalability issues that continue to hinder robotics-building initiatives. For something comparable, it’s helpful to reference the LAMP stack bundle of open source tools (Linux, Apache, MySQL, and PHP/Perl/Python) and what it did for software development ten years ago. ROS is an open source meta-operating system for robotics that has been around for a number of years, but appears to be difficult to use and scale for consumer robotics. Mr. Farshchi suggests we need to envision the possibility of a set of tools that would make the job of the robot designer as straightforward and scalable as that of a mobile app developer.

6. Robotics is now similar to the dawn of the PC era

It’s long been understood that robotics is now in the same place as the PC industry was 40 years ago. As Mr. Farshchi further points out, once upon a time when someone wanted to build a computer they had to buy all the parts and assemble the device on their own. Folks eventually found ways to reverse engineer the process. Once this happened developers didn’t have to double as computer engineers, and a big part of the scalability problem of computer manufacturing was solved. The challenge right now within the robotics industry is that roboticists are focusing so much on scaling up the technology that they are giving relatively little attention to the market impedance, strategy, and planning phases. Though Mr. Farshchi did make reference several times in his discussion to a startup called Modbot that’s trying to simplify and commoditize the robot design process. For more information, please take a look at this article.

There’s never been a better time to get involved with the robotics business. The rapidconvergence of digital technologies over the past 7 years – in mobile, Big Data, cloud, and social collaboration – along with the growth of open-source technologies and the 3-D printing revolution have produced a wide open field of opportunities for robotics innovations. Not to mention, the past 18 months has seen a huge amount of focus and investment in robotics by the likes of Google, Amazon, and Apple. And lots more startups are vying to get in on the “next big thing” in this space. Robotics, and hardware in general, is rife with challenges that make it hard to invest in and scale. Despite these factors, and more likely because of them, everyone is waiting to see who will jump in and become the next Apple or Google of consumer robotics. Could 2015 be the year of the personal robot?

To answer this and other questions related to business of robotics, Silicon Valley Innovation Center is hosting a full-day in person or virtual conference “Robotics as a Business: Monetizing the Emerging Megatrend in Commercial Robotics” on July 30, 2015. The conference is specifically designed for business innovators, investors, entrepreneurs and business executives in the disruption-prone industries as a forum that delivers vendor-neutral content on monetizing emerging megatrend in commercial robotics. Register here. Early bird registration is available until June 1.

info@svicenter.com 1-650-274-0214