We recently hosted 35 leaders in Industry 4.0 for an insiders forum at Darling Ventures. The intimate setting amongst heads of corporate venture, VC firms active in the sector, CEO’s of breakout startups and government representatives led to a frank and rich dialogue from a range of perspectives. Conversations bounced freely around the room from GE, Intel, Bosch, Honeywell, Renault, Telstra and Shell to fast moving startups Foghorn Systems, Skycatch, Gridium, Geminus and BRIQ with keen interest from our partner firms in VC.
The environment of multiple stakeholders is representative of the importance of close partnerships when looking to revolutionize the foundational industries of the global economy. Our innovations impact critical infrastructure, entire cities, mass producing manufacturing processes and multi-million dollar equipment. None of these can afford to be iterated on or put at risk with unstable products.
In the enterprise, SaaS has reduced friction of adoption to the swipe of a credit card. For consumer, mobile apps can be made available to the public on day one and improved on with over-the-air updates until evolving into a finished product. These luxuries do not exist for Industry 4.0, nor will they for most sectors. Yet the payoffs are enormous for those companies that succeed because these are trillion dollar industries where the problems they are solving are hard felt. And the stickiness of their solutions are measured in decades, not months or years.
Over the four investments our firm has made in Industry 4.0 we see CVC partnerships taking place at far earlier stages. The encouraged practice of co-commercializing solutions with a first customer to then sell on to the industry as partners. Founders are not pure technologists or entrepreneurs eyeing a giant market, they are domain experts native to their vertical. People with the schema and importantly the language to navigate it successfully.
No dorm-room blockbusters here.
So what were some important learnings from our afternoon as a group?
The best startups move to value based pricing.
While licenses and SaaS are increasingly common what many industrial companies are looking to buy is an outcome based pricing model. The most sophisticated solution providers are standing out through their intimate knowledge of their customers operations and are able to quantify the value that their software delivers. Both customer and provider sharing in that upside represents a maturation of the relationship and a far greater revenue potential for software companies in Industry 4.0. It is a more difficult and longer process yet the payoff can set a startup on a whole different trajectory.
Remote engagement does not work.
While brilliant data science can take place in a startups Silicon Valley office it is the work that happens at the coalface with customers that determines success. Deployments are mostly very geographically remote, individual operators have outsized degrees of ownership over their equipment and there are multiple overlapping units to navigate within the business. Employing technical engineers that are onsite and bring with them the organization intelligence of their customer’s business is what drives outcomes. A startups strategy needs to be far more informed than selling to CIO’s and supporting the roll out.
Macro impacts hit hard.
Successfully establishing yourself in Industry 4.0 requires a greater awareness and sensitivity to the macro winds of change. Geopolitics can redefine where you can deploy and who your customers can be, national policies can dictate your partners and supply chain, local unions can impact your move for workforce transformation. These remain out of a startups control and CEO’s must become students of the externalities that impact their industries. Their customer’s industrial business often has greater exposure to the global economy than a typical enterprise company. Recently there have been some notable cost cutting amongst some of the largest industrials in the US due to macro factors, leading some to divest their entire corporate venture portfolio.
Construction doesn’t buy tech they buy impact.
Drones, Ai, robotic process automation are not line items on a a budget of a construction project nor top of mind. Startups need to keep their innovations behind the curtain and sell an impact that hits to the main priorities of their user. Drones don’t deliver 3D accurate data models, they make daily progress reports more reliable. Machine learning software doesn’t deliver predictive analytics to run on your project financials, it stops fee erosion. Customer wins can’t be achieved by better positioning exercises alone, it must be how the solution is built, packaged and sold in. We see the construction industry as significantly insulated from outsiders giving a barrier to entry for entrepreneurs who have built their carrier in construction. Back at Darling Ventures conversations extended through drinks into the evening and it was clear there were many common threads amongst all these different stakeholders. Building that common language is what these motivating individuals driving Industry 4.0 all do extremely well. It’s clear that to win here it is a team effort.
Thank you to all our friends who joined us.
Darling Ventures is investing out of its third fund along a core thesis that data intelligence, automation and decentralization are transforming the enterprise, industry and traditional markets. We look to work alongside founders as their first backer and aligned partner, igniting their early journey.