How to build a successful IoT startup

How to build a successful IoT startup

22-Oct-2014 by AldodeJong

Berg, a pioneer in design and user experience in the Internet of Things, closed down earlier this month. The company received considerable media attention when it launched the Little Printer; an emotionally-appealing, connected product that was the result of a long design and development journey. Yet, despite its impact with customers and the design/tech community alike, Berg couldn’t find success as a business in the IoT. Is Berg’s story of being “almost there” and then shutting down unique? Unfortunately not: I have often seen IoT startups seeing a peak in their valuation within a few months of launch, but then having to shut down at the same pace.

There is ton of advice available on how to build a successful startup. However, in this post I want to focus on some points in particular which specifically apply to Internet of Things startups – whether they are just starting or are already busy fulfilling orders. From our research into the IoT startup world, which included numerous interviews with some of the early IoT pioneers, here are five things that I recommend keeping in mind if you want to build an IoT company that lasts.

1. Know what’s really important to your end users

Have you seen the internet-connected tray that you can use to keep track of the eggs in your fridge? Or the fridge that sends tweets? Although being fascinated by these products, I can’t help but wonder if I really need these things in my life. Tech startups too often create products with some ‘new’ feature and push them to the market, without truly understanding the needs of their target users.

In order to be successful, an IoT startup needs to have an offer that adds value to its users’ lives. How does the product improve the quality of your target users’ lives? Is this improvement sufficient to justify your user’s investment in your new offering, and change their behavioural patterns? No matter what phase of development you are in, if you are not getting clear answers to these questions, I would suggest you rethink your offer. Or, how about using ethnographic methods to really understand the behaviour and unspoken needs of your user? Think beyond functional needs to consider their emotional needs too. Many developers of these products focus on making everything faster, cheaper and more efficient, but they overlook all the other potential benefits that a connected service can provide.

2. Leverage what already exists

We live in a world where access and connections are opening up opportunities; where a startup in Bangalore can have the access to the same technological capabilities as one in San Francisco. One of the biggest success factors in such a scenario is the ‘time to market’, but there’s a catch! Getting it out there first is important, but getting it right when you do matters much more.

When trying to take their products to market quickly, startups often create what can be called bits and pieces, and not a real offer. Instead of trying to run the race alone, startups should collaborate with those who have complementary products and services to create complete solutions for the end user.

A good example is Libelium which has partnered with several cloud software solution providers to offer its users all the necessary components to deploy Internet of Things (IoT), machine-to-machine (M2M) or Smart City projects. Hence, without trying to do everything solo, Libelium enables others to bring together a complete end-to-end solution for their users in very little time. You will find there are hundreds of platforms out there that aim to make it easier for you to build a product. Choose well; we joke that there are more platforms than startups out there…

3. Don’t wait too long to make the switch to a scalable platform

Most startups bootstrap before getting to their big break, and postpone thinking about scalability until much later. Not surprisingly, they stumble when the time comes. You should start developing your product for scalability at the soonest stage possible. Don’t just go along, to get along. Think big and plan for it.

One of the IoT startups we spoke to had faced this very issue. The company created working product protoypes using Arduino – a platform they knew and were comfortable using to get good, fast results. However, on receiving ten times their initial funding target on Kickstarter, the engineers had little time to redevelop the technology to ship the product to backers on time, and had to design around the Arduino platform. Arduino is a great development platform and the enormous community around it means it’s ideal for people to get started with, but there are more suitable alternatives for producing large batches of final products. Had the startup team thought about and worked on scalability earlier on, they could have made a more compact and cheaper product, and potentially with a higher profit margin.

4. Build your business around a clear key purpose

Every company should be able to tell the story of why it exists in the world. If you want to build a company and not just a product, you have to have a good story of why you exist. IoT startups often dwell at product feature level, but this is a short sighted approach. It is like focusing on laying the bricks, but not seeing the monument you’re creating. I am not kidding if I tell you our team sometimes spent up to an hour reading the product website, reviews and watching videos of an IoT startup, just to be able to describe their value proposition for our IoT emerging business landscape.

Let’s take the example of Withings, a company that makes products and services for personal wellbeing. Starting with a smart weight measurement device in 2009, today the company provides a 360-degree wellbeing experience, with products helping users to manage weight, strengthen their heart, sleep better and be more active. The company and its products form a coherent whole.

5. Proactively adapt your business to emerging realities

The IoT is one of the hottest topics right now, and everyone is trying to figure out how to play in it. Every time someone launches a new product, the market changes and other players in the field need to adapt their offers to the new context. However, founders of IoT startups are often too focused on building their product and tend to lose track of emerging realities. We see that they end up making the same mistakes as large corporations; they look at the world as if it is static instead of dynamic. One way they do this is by focusing on currentmarket share when assessing the competition. When we asked about competitors in our IoT startup interviews, company founders usually bounced the question back to us. The founders were often surprised about the companies we saw as their potential competition, as they’d done their research months before and had had no time since to keep up with the latest developments in the field.

A good example of a startup which adapted very well to the emerging reality is Spark, which provides software and hardware solutions for cloud-connected things. They began with the sale of physical hardware last year. Their flagship hardware offer, Spark Core, is a development board with a built-in wifi connectivity shield. Spark saw several companies, such as Nomiku, Cleverpet, Niwa and Lono built using its hardware. These companies first used Spark components to prototype their products and then used Spark’s open source architecture to develop products suitable for mass production. Seeing that these products also needed cloud processing capability, Spark is now focusing on developing its cloud platform and Spark OS, where it sees a huge business opportunity. It seems the company is on to something because it recently raised $4.9 million in series-A funding.

Aldo de Jong is the co-founder of Claro Partners, a consultancy that helps corporations and startups by delivering service design and business innovation in the context of disruptive shifts in society and business. Aldo is a co-founder of Startupbootcamp IoT & Data which will be running next year in Barcelona.

In September, Claro released the “Guide to Succeeding in the Internet of Things”. This comprehensive guide reveals their framing of this opportunity space so that product designers, entrepreneurs and company strategists can leverage the IoT to create products and services that deliver solutions which address real user needs. To download the Guide click here.