IoT is trending. Companies invest in new tech...
Through 2018, IoT startups received a total of $16.7 billion in funding, which is a good sign of the Internet of Things market health. Yet, 70% of upstart tech companies fail 20 months after raising financing. Within the consumer electronics segment, startup failure rate is close to 97%.
To identify the obstacles holding technology companies back from success, we need to understand that, unlike mobile apps, the Internet of Things is a blend of hardware, software, connectivity, and data analytics, and often requires the integration with third-party or new IT systems and services. The development of extra functional components means R&D, longer project timeframes, and higher budgets. And even if an IoT solution makes it to mass production, startups need a use case scenario and hard numbers to prove the new device indeed brings value to the end user.
In this article, the R-Style Lab business development team will enumerate the top three strategic mistakes made by IoT startup founders and provide tips on how to avoid them.
Fatal Mistakes to Avoid When Launching an IoT Startup
Competing with Tech Giants
The cold hard truth about consumer IoT is that the market is segmented into proprietary ecosystems, like those of Apple, Google, and Amazon. And while your standalone device — e.g. a smart curtain system — can be a hit on Kickstarter, it requires a pre-existing infrastructure to work well, deliver seamless user experience, and meet your revenue targets.
Considering the fact that few consumer electronics companies make their APIs public, the integration with third-party systems may consume the lion’s share of your IoT software development budget. And there’s always a chance that your startup will get unnecessary attention from someone like Google. That’s exactly what happened to Pebble: the smartwatch maker could not withstand the competition from Apple and was acquired by Fitbit for $23 million, which was just enough to cover their debts.
As an IoT startup founder, you have two options:
- Build an extension of a popular device — for example, an Alexa-operated smart curtain.
- Think of a non-technology industry you have a solid background in and venture into IoT business solutions.
Reluctance to Hire Third-Party Experts to Bridge Technology Gaps in an IoT Project
According to Cisco, 75% of IoT projects stall due to the lack of experience on a company’s part. Even if your product is designed to solve a real-world problem, such as monitoring temperature in a greenhouse or maintaining comfortable room temperature, it needs a complete IT stack to support its functioning.
IoT startups are usually led by a tech genius skilled in a particular domain (hardware design, web development, data science, etc.). It’s very rare for a technology firm to have a full-stack development team on board.
That’s how IoT has turned into the Internet of Broken Things:
- Smart Home devices with hardcoded passwords fall victim to increasingly intelligent botnets.
- Homeowners purchase smart thermostats, go on holiday, and return to a cold house — simply because the vendor has gone out of business.
- FDA warns patients about cybersecurity threats with connected insulin pumps, which could potentially allow hackers to inject high doses of the hormone into a patient’s system.
As a startup founder, you cannot be good at everything. Instead of building an IoT solution solely by means of an internal team and getting negative feedback from your target audience, you could entrust certain tasks — i.e., prototyping, cybersecurity assessment, mobile app development, — to an experienced vendor, and focus on what you’re good at.
Taking Monetization Lightly
Innovation for its own sake is a dead end: both you and your investors need a product that sells well.
Within the consumer segment, commercial success is often associated with five-star service, which involves regular updates, security patches, stable device-to-app connection, and server availability.
Will the $50 price you’ve set for your smart curtain justify the development, production, and maintenance expenses?
The B2B IoT is not different. According to Business Insider, two years ago 19% of executives planned to invest $1-10 million in IoT projects in the next five years. In 2018, the figure fell to just 11%.
Companies’ waning interest in innovation can be attributed to several factors, including the unresolved Internet of Things security issues, vague ROI perspectives, and the fact that 30% of IoT projects developed internally never go past the Proof of Concept stage — again, largely due to the lack of experience.
How can your startup sell a manufacturing or agriculture company on an IoT project?
According to Stacey Higginbotham, a technology journalist and recognized IoT influencer, companies want to try a connected product before buying it and see in what ways the technology could improve their workflows. Rajiv Lal, the Stanley Roth Sr. Professor of Retailing at Harvard Business School who is currently teaching a course on connected products, shares the same sentiment. Just like Xerox changed its business model from selling copiers to renting the equipment and charging by the number of copies made, forward-thinking technology companies of today help their customers capture the data produced by smart systems and boil it down to something meaningful.
Going back to the Business Insider survey, 45% of companies are fine with spending a small amount (less than $100 thousand) on an IoT project, which falls in line with our “try before you buy” perspective.
- The decision to create an IoT solution should always be based on a thorough market research, which involves customer surveys, competitor analysis, and the identification of product features that would increase its commercial appeal.
- Start your knowledge-intensive project with a Proof of Concept and Discovery Phase to make sure there are no technical barriers to implementing your idea and develop a detailed project roadmap.
- Address a reliable technology company well-grounded in IoT, cybersecurity, and app development for startups.
- Build an MVP version of your product and collect user feedback early on.
- Educate potential customers on your IoT solution — especially if you’re eyeing the B2B segment.
- Think of a flexible monetization model that will ensure a continuous revenue flow.
- Shift your business paradigm from a “connected device” to a “connected service”.
- Continue to expand your IoT system’s feature set to keep up with the evolving market.