For IoT startups B2B is where it’s at

Recently it was my privilege to participate in a workshop on Internet of Things opportunities sponsored by the RIC Centre. There were several useful insights that I’ll get to in a moment.

Full disclosure: the fee for me to participate was paid for by one of RIC Centre’s partners, Arrow Electronics. Besides my day job, I’m working on a startup to make music more accessible to people with dementia and depression. My startup is LifeMusic and it’s a client of the RIC Centre. Its method to find and play music involves IoT.

Arrow presented its perspectives on what IoT projects need to do to succeed; spiced up with a number of references to successful startups. Given that Arrow is a US-based global IoT component supplier, I appreciated that its examples were all Canadian IoT startup successes.

Microsoft, another RIC Centre partner, provided research on how to spot opportunities in the IoT environment. As one of the big SaaS platform vendors, Microsoft sees a lot of deals.

The cherry on top was the end-of-day panel where founders discussed their lessons learned.

In the startup journey there are very few rules… and those that do exist are riddled with exceptions and contradictions. In established markets there is a known landscape and a map to navigate it. In startups you must make the landscape and map your way around it; all at the same time.

Every journey is unique. The experiences of other founders are invaluable.

So, back to the workshop takeaways, of which there were three.

1. IoT and B2B? Yes. IoT and B2C? Not so much. Pretty much all the Arrow anecdotes about successful IoT startups were drawn from B2B. Why so few B2C examples? The IoT successes come from rolling up enormous volumes of in-service data, spotting patterns of activity that cost millions of dollars, and providing tools to cut that cost.

Consider city street lights. Municipalities spend millions on the capital and operating costs of street lights. And they have staff tasked with tracking those costs and managing them. Cause and effect are clear. While data security is an issue, individual privacy is less of a concern. The big risk is that bad actors will break in and shut off essential systems.

Now consider a B2C opportunity; say the therapeutic music system I’m working on. The cost of care for people with dementia is conservatively estimated in the billions of dollars. Part of the bill is paid by governments. Part of the bill is paid by individual families. So, who’s the customer? And when some of the cost is lost wages, how do you price that?

And besides data security, there’s privacy concerns. Some IoT startups have played fast and loose with personal data. The fallout of these actions is that social innovation through data aggregation is now much more difficult.

2. If your social innovation project depends on going through distribution, think again. To fit a distribution model you need markets where standard hardware is sold in millions of units. Any customization is dealt with in software. Social innovation is about delivering public good – mass market, so far so good. That said, the best outcomes are achieved when experiences are customized for each person. This can involve customized hardware as well as software. This adds complexity to production and in-service use – a non-starter for products that will get to market through a distribution channel.

3. Partnerships. Partnerships. Partnerships. The panel discussion provided useful tips and tracks on this vital tactic. In B2B sales more than one person is involved in evaluating and buying your startup’s product. Getting all parties to align is a cat-herding exercise complicated by the fact that large organizations are very uncomfortable buying from a startup with no track record. With a big company partner that’s a good fit, it supplies the brand and boots-on-the-ground relationships that customers need to feel safe.

The skills and experience of the partner can also save startups from the water-in-the-desert trap. The technical experts of a potential customer are really well positioned to appreciate your joy of discovery and your struggle to develop your IP. It’s a fatal mistake to confuse technical sympathy and commercial commitment. That’s when a big deal that looks like a sure thing and has become the cornerstone of your cash flow and fund raising strategy turns out to be vapor. Big company sales reps are very adept at avoiding this trap.

The founders also shared useful insight into the mindset of the people to negotiate with for a partnership. The people who make these decisions control the marketing and sales budgets and resources. While some of them are quite technical, they are comped on meeting sales targets. Period. When you propose a partnership, you’re asking to borrow their brand and their reps to sell your product. That’s an unacceptable risk… unless you can demonstrate exactly how you help the big company sell more of its core products, and how much of them.

Geoff Foulds
Geoff Foulds
What fascinates me are the edges. And nowhere are the edges edgier… the stakes higher… than startups. There are plenty of sources of friction, compression and tension among founders and financiers, engineers and marketeers. How do you mesh all the edges so they transmit power even when loads are heavy? That’s what I write about.

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