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IoT startups learn to balance risks and opportunities

Bringing promising ideas to market is never easy, but savvy entrepreneurs are finding new ways to move IoT startups from prototype to production.

Internet-connected beacons are making inroads in a number of vertical industries, but in order for them to succeed, someone has to make them. They are, after all, inherently physical devices deployed in physical spaces. For example, retailers are using them to detect shoppers who pass in-store displays and send relevant coupons to entice sales.

IoT startup BKON Connect Inc. has set its sights on differentiating itself in the beacon market by doing away with the smartphone app that is typically required, part of what some are calling the "Physical Web."

"It isn't realistic to expect people will install an app on their smartphones for every possible interaction," said Richard Graves, BKON CEO, citing other types of communications, such as accessing transit schedules and paying parking meters. "We think the Physical Web will gain much more traction over time because it's a continuation of the internet's natural evolution toward simplicity."

But to carve out a market niche, BKON has to supply beacons. So, it faces a challenge shared by many IoT startups -- creating a network of components suppliers that can economically produce circuit boards, radios and related electronics first in relatively small quantities and then quickly ramp up production if a new product becomes a hit.

"Obviously, you've got to find a manufacturer that you can trust and that considers you significant enough to give you its attention," Graves said. "It's a risky proposition if you're not working with a company you know pretty well."

Comprehensive resources for IoT startups

The risks are real for IoT startups, but so, too, are incentives that encourage entrepreneurs to roll the dice on promising ideas. Resources are available today that reduce traditional barriers to entering new markets that could stall initiatives. "There are options at every stage of the development process, from prototyping and funding to production," said Steve Hoffenberg, director of IoT and embedded technology at VDC Research Group Inc.

There are options at every stage of the development process, from prototyping and funding to production.
Steve Hoffenbergdirector of IoT and embedded technology, VDC Research Group

For example, early-stage entrepreneurs can prototype ideas using maker platforms such as Raspberry Pi and Arduino, which offer low-cost computer-on-a-board solutions, support open source programming languages and attract developer communities. Later, as startups move from prototypes to sample circuit boards, they can supplement in-house expertise with professional engineering services that turn a board layout file into a small number of samples. "Those services are readily available in many cities or online," Hoffenberg said.

Life gets more complicated as companies move beyond the proof-of-concept stage to early production models. Often, designers will need custom semiconductors to meet price, performance or other unique requirements. Licensees of ARM processors, such as the Cortex-M family designed in part for IoT applications, can help create these custom components.

In some cases, young companies may decide to outsource circuit-board manufacturing or, alternatively, partner with full-service companies that handle all phases of commercial production. "At that point, the challenge isn't finding places that can do the work -- they're readily available in many cities -- it's getting the funding to afford the production runs," Hoffenberg said.

Crowdsourcing sites like Kickstarter and Indiegogo have opened up funding channels for many startups. "It's pretty easy these days to get upfront funding in order to be able to afford the first or second batch of mass production," Hoffenberg said.

But with money in hand, how can IoT startups be sure their chosen partners can deliver commercial-level quality? Besides considering the rule of thumb that contractors get what they pay for, entrepreneurs should plan on an extensive vetting process. Industry observers said startups should approach prospective partners after clearly delineating quality needs and reviewing a manufacturer's ability to meet those specifications. But even this isn't foolproof.

BKON's Graves recalled a startup that spent months working through quality-control processes with an overseas manufacturer. But when the partner received a larger contract from another customer, it subcontracted the original order to another company. "Then, boom, the quality went from excellent to poor overnight," he said.

His advice is to secure a second manufacturing partner as quickly as possible to mitigate the risk of being dependent on one company.

What if lightning strikes and IoT startups finds themselves flush with orders for tens or hundreds of thousands of units? Large, global contract manufacturers like Taiwan's Foxconn Technology Group are geared for producing high volumes. But entrepreneurs will have other considerations to ensure their companies won't be overwhelmed by success. "At that point, you're scaling up an entire company, not just the production," said Hoffenberg. "Marketing, sales and everything else have to scale up, too."

IoT startups: Beyond just devices

Digital Lumens Inc. is a young company that is growing but so far hasn't experienced panic-inducing supply chain problems, said Kaynam Hedayat, vice president of product management. The company produces IoT lighting systems primarily for industrial applications, but includes commercial businesses in its future business plans. The systems combine controllable LEDs with wireless mesh networking, which passes data to and from management software in the cloud or at customer sites. "By themselves, LEDs offer 50% cost savings compared to traditional lights," Hedayat said. "By putting additional sensors next to the LEDs and connecting them to our software, users can go from 50% to 95% savings, depending on the environment."

Other sensors used by Digital Lumens monitor ambient daylight to adjust artificial lighting and measure temperatures in warehouses for heat maps that show areas of highest activity to manage inventory placement.

The company designs its own sensor modules and builds the wireless components. While the IoT architecture has been deployed across 300 million square feet of industrial space, "it's not hugely challenging to meet production numbers yet," Hedayat said. "As we move into the commercial market and increased demand for more lights and with more sensors, that may become a challenge, but in terms of our supply chain and managing current volumes, we are doing fine right now."

Because Digital Lumens develops the control software that manages the lighting systems, devices aren't its only concern. "Within our own environment, we can handle our sensor data quite effectively. But as we look for opportunities to partner with emerging companies, we may need to integrate other types of sensor data," said Hedayat.

As a result, its managers may seek out third-party developers to expand the capabilities of the control software. "Initially, I expect that we will bring data directly into our system. For example, we have looked at different temperature sensors that would talk directly to our gateways," he said. "As we move on, we can imagine working with companies whose platforms would enable different kinds of data flowing into our system."

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