While the internet of things is still relatively new if you consider the entire swath of history, it’s rapidly being adopted into mainstream society, which means it’s going to be a hot target for investors. But like any new technology or entity, IoT products and companies must be studied and handled with care by investors. Excitedly rushing into the next big thing to make a quick buck is never a good idea.
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Here are three things successful investors must consider before investing in IoT.
1. Find the return on investment
Finding any traditional financial rate of return may mislead you. The great commercial successes of the past few decades all did one thing very well. They preserved the only non-renewable resource: time.
Although it’s not IoT, think of the iPhone. The extraordinary ROI of an iPhone is not that it’s a better phone. The ROI is in it being a tool that allows people to save time by having email, text, music, camera, video, maps, health, calendar, reminders, notes and much more all in their pocket 24/7.
Finding the ROI for IoT must include finding the return on time. Whose valuable time is being saved by this product or service? We see many businesses utilizing IoT as a way to manage inventory, streamline manufacturing and monitor shipping, to name a few ways, which saves many employees’ time and improves overall efficiency.
2. Find more than just the ‘what’
People get caught in the buzz of what is hot and forget to look at the how and the who. As the saying goes, investing requires both a jockey and a horse to win. Successful investors, and correspondingly successful management teams, apply processes, networks and resources. It’s great to have a wonderful idea for a product, but how do you plan to develop it, manufacture it, market it and so on?
It’s also important to find out who is running these companies and who their managers are. Who are the angels or venture capitalists backing a company? How have they generated a track record of success, and is it repeatable? A great idea can easily die without the proper management, networks and funding. Never invest in just the what.
3. Follow the economics
Great investments come from ideas that preserve the scarce and squander the abundant. Understanding what is scarce and abundant is the foundation of all economics — and successful investing. Always invest in ideas, technologies and companies that preserve what is scarce by wasting what is abundant. Importantly, what is scarce and abundant can change without you ever getting the memo. Those who bought Apple at under $2 per share, as we did for ourselves and investment clients, were pursuing rate of return. What we saw was that while the falling cost of technology was abundant, portable, on-demand music was scarce.
Investors following the three steps above will dramatically improve their odds of finding successful IoT investments.
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